Change in natural gas and oil prices

Portrait of the natural gas market

Winter 2016 left an enormous surplus in North American storage sites. On February 26, stocks of natural gas stood at 510 billion cubic feet (Bcf) in Canada, for a surplus of 183 Bcf compared to the five year average. This situation is due to very mild temperatures in North America. On Gaz Métro territory, from November 2015 to February 2016, the number of heating degree days were on average 15% below the projected normal. Our customers were able to benefit from very low prices. The average of the Empress monthly index was $2.34/GJ from November to March, its lowest level since 1998. The financial markets forecast an Empress price of $1.70/GJ for April to October 2016.

    

Advantage of purchasing from Dawn

It will be recalled that as of November 1, 2016, Gaz Métro’s direct purchase customers will have to deliver their natural gas to Dawn.

Supply cost

Current market prices confirm the economic advantage of the moving gas supply to Dawn. For example, for the period from November 2016 to October 2017, natural gas purchased from Dawn and delivered to GMI EDA cost $0.64/GJ less than natural gas purchased at Empress and delivered to GMI EDA. Although the supply price is higher at Dawn than at Empress, the transportation savings offset most of the difference. Each additional molecule purchased from Dawn instead of Empress is therefore advantageous for all customers using Gaz Métro’s transportation service.
Dawn purchases currently account for about 48%. This proportion will increase to more than 85% starting on November 1, 2016.

The transportation rate billed to Gaz Métro customers

The transportation rate billed by Gaz Métro to its customers is mainly based on the proportion of purchases made from Empress and Dawn. This rate can differ from the weighted average rate of transportation providers on the primary market (TCPL and Union Gas) for the following reasons:
  • Gaz Métro’s transportation tools include purchase contracts on the primary as well as on the secondary market;
  • Gaz Métro’s rate is adjusted by an amount (positive or negative) equal to the difference between the rates and the acquisition costs of prior years, which accumulate in a deferred expense account.
The transportation rate that will be billed by Gaz Métro as of November 2017 is not yet known. The rate will have to be submitted to the Régie de l’énergie as part of the 2017 rate case. According to preliminary calculations, the transportation rate should be between $1.10 and $1.25. As such, with Dawn’s gas supply price at $3.23, the total price of natural gas delivered to the Gaz Métro franchise will be between $4.33 and $4.48.

The price reduction should continue next year, as the transportation capacities are transferred from Empress to Dawn.

However, Gaz Métro must keep 85,000 GJ/day of transportation from Empress until 2020 in order to respect an agreement concluded between TCPL and the eastern distributors (Union Gas, Enbridge Gas Distribution and Gaz Métro), and endorsed by the National Energy Board. Note that with this agreement, TCPL will proceed with the construction necessary to increase supply at Dawn. The additional costs of these transportation capacities will be processed separately, however, and charged to all customers, including customers who use their own transportation service.

The oil market today

After bottoming out at $29, the price of Brent crude has climbed to over $40 bbl. Energy Information Administration data indicates a reduction in U.S. production since April 2015. Talks have also begun between oil-producing countries with a view to stabilizing production.

The following graph shows the price history of natural gas and oil in $US/MMBTU, and futures, for 2016 to 2021 .

Major industries market profile

Major industries are the biggest consumers of natural gas in Québec. In light of their importance, we compile a detailed profile of this clientele every year. Below are some highlights of the last fiscal year.

Major industries

  • Volumes were up by 2.4 Bcf between 2013-2014 and 2014-2015, to 113.4 Bcf .
  • Distribution revenues grew to $109.7 million, despite a 3.5% decrease in the distribution rate at January 1, 2015.
  • Large migration of 39 customers (9.5% of total Major Industries clientele) to firm service, including 18 complete transfers of interruptible volumes to the continuous service.

Customer profile

Major Industries Sales currently has 413 accounts in eight sectors:
  • 39% manufacturing
  • 32% institutional
  • 29% heavy industry
The total consumption of 113.4 Bcf represents 56% of Gaz Métro’s total volume. Heavy industry accounts for 75% of the natural gas volume consumption by our Major Industries customers.

The $109.7 million in distribution revenues represent 20% of Gaz Métro's total revenues. Revenues derived from heavy industry represent close to 66% of the revenues generated by our Major Industries customers.

Actual interruptions days, winter 2015-2016

As spring just came in, here is the number of actual interruptions days as of March 20th. The emergency interruption day of January 4 is included in the total actual interruption days shown.

Call for interest: purchase of emissions units, deadline April 20

In order to cover its needs in connection with the cap and trade system for greenhouse gas emission allowances (CATS) while reinjecting funds into Québec, Gaz Métro would like to purchase emission units from its heavy emitter customers who want to dispose of units that exceed their needs, whether they were acquired as part of previous transactions or obtained free from the Québec government. Gaz Métro is therefore issuing a new call for interest to discuss offers that could translate into short-term transactions, where applicable.

For any questions or to indicate your interest, contact Hugo Levert, Carbon Market Senior Advisor, at 514 598-3186 or at hlevert@gazmetro.com.

Did you know?
  • In fall 2015, Gaz Métro acquired the first offset credits ever generated in Québec under the CATS from Recyclage ÉcoSolutions Inc. These credits stem from the destruction of 81 tons of CFCs, powerful greenhouse gases found in old refrigerators and other domestic cold appliances. Through this transaction, valued at over $2 million, Gaz Métro is proud to contribute to a green economy in Québec.
  • On February 25, the Ontario government published a draft regulation for the implementation of its own cap and trade program . Under the regulatory proposal, the program would come into effect on January 1, 2017, and immediately cover all the industrial sectors contemplated as well as the import of electricity and distribution of natural gas and oil products. The program is similar to the CATS in several respects and will be linked to Québec’s and California’s carbon markets once the linking agreements are signed.

DATECH Group: A team of gas technology experts

Unique and available exclusively to our clientele, DATECH (Développement et Assistance Technologique ) Group is made up of engineers specializing in the energy field. For the last 20 years, Datech’s core mission has been to promote the adoption of the latest gas technologies and most energy efficient equipment with a view to enhancing the competitiveness of their users. DATECH Group consists of two complementary teams:

Assistance Technology Intelligence
  • Facilities visit
  • Preparation of an energy profile
  • Conversion scenario
  • Energy savings measures
  • Technology proposal that will help you increase output and become more competitive
  • Close collaboration with the Natural Gas Technologies Centre
  • Technology watch and development
  • Studies
  • RPivotal role (collaboration with other professionals)in energy efficiency projects

These two teams are made up of experts specializing in the needs of large businesses. To take advantage of DATECH’s services, do not hesitate to communicate with your Adviser, Major Industries Sales.