In late September, Canadian and U.S. natural gas storage levels were below their averages for the last five years. At September 14, overall storage levels in Canada were at 93% of the five-year average. However, despite these lower-than-average levels, commissioning of the Rover Pipeline exerted upward pressure on demand for gas and at the same time injections at Dawn, resulting in a surplus at storage facilities in eastern Canada. These surpluses are helping close the gap with the historical averages.
In any event, with normal temperatures, the expectations are that gas inventories will return to normal levels by the end of the winter, as the forecast increase in production should outstrip demand growth in the months ahead. Natural gas market prices therefore should not react to this storage deficit. In terms of price outlooks for this winter, the financial market was showing, on September 25, 2018, a price of $3.97 at Dawn. Of course, the harshness of the winter will ultimately determine which path prices will take over the coming months.
New draft regulation on RNG targets
A draft regulation was tabled in August by the government to create distribution targets for renewable natural gas (RNG). The target would be set at 1% as of 2020 and would increase gradually to 5% in 2025. Note that the processing of the RNG file is still ongoing with the Régie de l’énergie.
2018-2019 rate case
In August 2018, Énergir participated in the Régie de l’énergie’s hearing on the rate case, which touched on subjects including future rates. The Régie’s decision on this filing should be delivered in November so that the rates can be applicable on December 1, 2018.
The rate reform will take a longer time than estimated
Phase 2 of the rate reform was temporarily suspended by the Régie de l’énergie, as it would like to have an expert review the current state of the areas impacted by this phase, which touches on the revision of the supply, transportation and load balancing services as well as the interruptible service offering. Please note that the suspension of this phase is outside of Énergir’s control. However, we will be prepared when it is relaunched, likely some time in 2019.
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On June 15, 2018, the Conservative Party of Ontario announced its intention to end Ontario’s cap and trade system for greenhouse gas emission allowances (C&T system). It was a major campaign promise for Doug Ford, leader of the Conservative Party. A bill clarifying the compensation process for Ontario emitters that purchased emission rights was tabled in July. The bill includes an envelope of $5M for compensating emitters affected by the end of the market. The bill is currently under review in a consultation period that will continue until October 11, 2018.
Since the announcement of Ontario’s withdrawal, the ability to transfer emission allowances to or from Ontario emitters’ accounts has been suspended. This suspension was aimed at preventing the possible resale of significant quantities of emission rights by Ontario emitters, which could have caused a major reduction in the price of emission allowances in Québec and California, as the Ontario carbon market was linked to these jurisdictions. Once the immediate effects of Ontario’s withdrawal faded away, no significant price decrease on emission allowances in the secondary market was observed, and prices have actually increased since the announcement.
In the medium and long term, Ontario’s withdrawal could limit the anticipated upward pressure on the price of emission allowances in Québec and California, as it was predicted that Ontario emitters would be net importers of emission allowances from Québec and California.
Ontario emitters are now facing significant uncertainty regarding carbon pricing. Predictions state that a carbon charge and an output-based pricing system (which applies to industries emitting more than 50,000 t GHG/year) announced as part of the federal carbon pricing backstop, will enter into force on January 1, 2019, and will be applied in provinces and territories that have not implemented a carbon pricing mechanism deemed equivalent to the federal backstop. The price for carbon under the federal backstop will be set at $20/ton in 2019 and will increase by $10/ton per year until 2022.
Nevertheless, Doug Ford’s government has declared its intention to contest the application of the federal pricing system. The federal plan could therefore come into effect on January 1, 2019, pending a decision on the legal challenge. Further sudden developments are possible before that date, so this is an important issue to follow for Ontario emitters until the end of 2018 and into 2019.