Canadians told to brace for big natural gas price hikes WebPosted Fri Oct 20 15:39:51 2000 ET

TORONTO - Millions of Canadians who heat their homes with natural gas are facing a severe case of sticker shock this winter.

The soaring price of gasoline has captured most of the recent attention of consumers and the media. But the next few months will see increases in natural gas bills that will make some of those gas pump increases look like small change.

How big are the coming natural gas increases? Try an extra $420 a year for the average customer of Enbridge Consumers Gas in Ontario. That's what Enbridge has told its 1,500,000 customers to expect.

Union Gas, which has more than a million natural gas customers in Ontario, has written to each one, warning about the latest gas increases (which went into effect this month).

"Because it is a commodity," Union Gas president Robert Reid wrote, "Union Gas has no control over the price of natural gas ? the price we charge you is the same as the price we pay. However, we want to do all we can to ensure our customers are prepared for changes in their heating bills this winter."

Union Gas also anticipates an average increase of about $400 a year for its customers.

It's not just happening in Ontario. SaskEnergy last week filed for permission to raise natural gas rates. It's asking for increases that will average $17 per month over the next year, effective Nov. 1. Saskatchewan has the lowest natural gas prices in the country.

Utilities in Alberta and Manitoba also proposed significant increases early this month.

Canadians don't even need to be natural gas customers to feel the pain. Enmax, the company that provides electricity for 325,000 Calgarians, boosted electricity rates to its customers by 25 per cent in the summer (average increase: $12 a month), blaming the increase primarily on rising natural gas prices.

While there's no immediate sign of much lower natural gas prices (or lower oil prices either), governments are starting to offer energy rebates to ease the pain.

In September, the Alberta government announced tax-free energy rebates worth $690 million ($300 for every Albertan over age 16). Alberta's also giving a $20 per month rebate for all residential electricity customers that will last all of 2001.

And this week, the federal government announced a $125 fuel rebate ($250 per family maximum). But it's available only for low and moderate income earners.

So what exactly is forcing governments to offer all these rebates anyway? Why are gas prices rising so much?

Blame the free market. Since 1985, natural gas prices in Canada have been deregulated, with Canada being part of a continent-wide natural gas market.

In other words, the market determines the price. As with any other commodity, supply and demand drives the price of natural gas. And the free market has driven prices through the roof.

The U.S. production of natural gas was low this year because there was very little drilling for oil and gas last year. Oil and gas prices were so low in 1999, many exploration companies in Canada and the United States closed up shop. That hurt supply.

On top of that, there's more demand for natural gas. Despite all the price increases, it's still cheaper in most parts of the country to heat with natural gas than with oil or electricity. Also, many people are switching from oil or electricity to gas.

Add to that, the fact that natural gas is available in more communities as pipeline networks are expanded, and you have the makings of a classic supply/demand crunch.

And then there are the lucky Canadians who decided in the last couple of years to sign long-term supply agreements from independent natural gas suppliers. They locked in fixed prices for five years that were considered high at the time, but are a bargain now. For them, the natural gas spikes won't be reflected on their gas bills.

For the rest of us, the good news is that things won't stay this bad forever. Natural gas prices are cyclical. If this is a warm winter, prices will retreat as supplies increase. And with oil and gas prices now so high, more companies are exploring and drilling.

That will also increase supply, so Canadians can look forward to a likely moderation in prices...but not before next year.

http://cbc.ca/cgi-bin/templates/NWview.cgi?/news/2000/10/20/natgas001020

-- Martin Thompson (mthom1927@aol.com), October 22, 2000

Answers

Traditionally we get 15% of our natural gas from Canada. Who wants to bet these exports will be cut off, leaving us with a 15% greater problem of supply than we've got now?

-- Billiver (billiver@aol.com), October 22, 2000.