Change in natural gas prices

Change in prices over the last few months

Fall 2018 was characterized by strong production growth and low storage levels. In addition, the temperatures in November 2018 were below seasonal averages. Given this situation, natural gas prices reached high thresholds for November, so much so that November 2018 even qualified as the coldest November in 30 years. As you can see in the first graph below, at the highest point in the month, the natural gas spot price at Dawn hit $6.29/GJ, well above the highest price in November 2017 ($4.08/GJ). In the second graph, you can also see the intensity of the temperatures in November, i.e., more than 423 heating degree days, compared with the average of 335 in the past five years.

Storage Levels

Storage levels at the beginning of winter 2018–2019 were well below those recorded at the beginning of the previous winter. For example, as at November 2, 2018, storage levels in the United States and in Canada only represented 84.6% and 86.1%, respectively, of the storage levels recorded at the beginning of November 2017.

However, with the return of above-normal temperatures in December, gas withdrawals from storage sites were lower than those recorded in November 2017. This allowed for a return to almost normal temperatures, with storage levels today being very close to the storage levels at the beginning of January 2018. In Eastern Canada, the natural gas storage level is even 19.9% higher than what it was last year.

Price Forecasting

For the rest of winter 2018–2019, the financial market was showing a Dawn spot price of $3.44/GJ on January 11, 2019. On this same date, the futures for February were at around $3.88/GJ. But, as always, it is the actual temperatures that will ultimately determine the path that prices will be taking over the coming months.

Distributor's Natural Gas Service Process (System Gas)

As you know, Énergir purchases system gas for customers who have selected the distributor’s supply service. These purchases represent approximately 87 PJ, i.e., 2,296 106m3 annually, and are almost evenly split between purchases contracted in advance (through calls for tenders) and purchases on the spot market. The system gas selling price is calculated monthly and approved by the Régie de l’Énergie.

Tendered Purchases 

During calls for tenders for purchases contracted in advance at Dawn, Parkway and Empress, Énergir makes sure that it maintains a diversity of suppliers and contract terms. Purchases at Empress are based on an index that represents market conditions in Alberta, while the purchasing strategy at Dawn is as follows: purchases in advance are based 50% to 75% on the NYMEX index, and the rest are based on the NGX Dawn index.

Spot Market Purchases

As mentioned, Énergir is active on the spot market and regularly transacts at different points of purchase. In terms of its operating needs, Énergir makes its spot purchases at Dawn or Parkway, in addition to using the inventories available at Enbridge Gas Inc. (formerly Union Gas) in order to meet variations in customer consumption. Énergir takes market conditions into account in its purchasing strategy and it can adjust this strategy as needed, in the best interests of its customers.

Just like forward purchases (indexed purchases contracted in advance) made by Énergir, spot purchases are made at trading hubs offering liquidity. At Dawn, more than 1.2 million GJs are traded per day on the spot market on the ICE exchange, to say nothing of the Over-The-Counter-Transactions (OTC).

In short, Énergir is remaining cautious in its commitments so it can preserve all the flexibility it needs, particularly if the gas market context changes enough as to significantly and negatively impact the customers at one or many trading hubs. By trading both on the futures market and on the spot market, Énergir is diversifying its price portfolio, thereby ensuring that it maintains flexibility when it comes to demand for natural gas.

Change in cap and trade prices over the last three months

The price of emission units on the market has been on an upward trajectory over the past three months, increasing from US$15.42 on October 10 to US$15.62 on January 11 (+1.3%). The gradual rise in prices can be explained mainly by the anticipated increase in the auction floor price starting on January 1, 2019.

During the November 14, 2018 auction, the final selling price of current vintage emission units was set at US$15.31 (CAN$20.27), while that of future vintage emission units was set at US$15.33 (CAN$20.30). The selling prices were relatively in line with the consensus among analysts, and so the market did not experience any particular volatility when the results of the auction were made public.

Please note that the floor price goes up 5% each year, not to mention the increase in the inflation rate measured by the Consumer Price Index (CPI). Also, the floor price in effect at auctions is either the Québec floor price or the California floor price, whichever is higher, converted into a common currency. Based on all of the above criteria, the floor price for 2019 was set at US$15.62.

A bright future for energy efficiency programs

Further to Québec’s new 2018–2023 energy transition, innovation and efficiency master plan, Énergir will take all necessary steps to increase the savings realized under its programs by 30% over the next five years. Subject to the Régie de l’énergie’s forthcoming decision in 2019, Énergir’s efforts should result in enhanced financial assistance, new programs and increased collaboration with Transition Énergétique Québec (TEQ) to help you further reduce your energy costs and GHG emissions.

Your Major industries advisor is available at any time to help you identify potential energy efficiency measures for your establishment. They can also help you take advantage of Énergir’s financial assistance programs in order to reduce the payback period on your investment.

Furthermore, did you know that TEQ’s financial assistance programs can supplement those offered by Énergir? For example, your project could qualify for up to $175,000 in financial assistance under Énergir’s Implementation of energy efficiency measures program, and you could obtain further financial assistance from TEQ’s ÉcoPerformance program if necessary. 

Are you familiar with the recommissioning program?

To help you improve your energy efficiency and reduce your annual energy consumption, Énergir will give you a grant when you recommission the mechanical systems in your building. As listed below, the many advantages of this program have motivated customers such as Groupe Petra to participate in this type of project:
  • Lower your annual energy consumption by up to 10%
  • Lower your energy bill and your greenhouse gas emissions
  • Grant of up to 50% of the costs of your project, up to a maximum of $54,000.

 For further information, please communicate with your representative or visit the program’s web page.