Despite early indicators of an economic turnaround and signs that energy demand is showing signs of a rebound, Canada should have adequate supplies of heating oil, natural gas and electricity to make it comfortably through the 2009-2010 winter, according to the National Energy Board (NEB) in its annual Winter Outlook.

“With renewed signs of economic recovery in Canada and around the world, and with the winter heating season under way, energy demand is expected to grow,” said NEB Chair Gaetan Caron. “But with surplus inventories for all our energy commodities, we are well positioned to handle any increased demand.”

The NEB also said energy prices this winter will be driven in large part by the strength of global economic recovery. Compared to the 2008-2009 winter, the report found that Canadians will likely pay more for heating oil and less for electricity and natural gas.

Due to the “robust inventories” of natural gas going into the winter heating season, the NEB said Canadians can expect to see prices of US$4.00-5.50/MMBtu over the winter period. “Sustained cold weather or a strong economic recovery could push prices above that range but, on average, Canadians who heat their homes with natural gas will pay less this winter,” the NEB said in its outlook.

However, the NEB said a rebound in prices could occur later in 2010 due to the current production balance. Because of the low prices, drilling activity in Canada and the U.S. is roughly half the levels of previous years, the report found, which should lead to a small reduction in supply over the winter and should help rebalance the market later in 2010. The reduction in drilling has resulted in only slight production declines, largely because of strong production from emerging unconventional supply sources in the United States.

“We expect North American production to continue its slight decline over the winter,” the NEB said. “The decline is expected to be more pronounced in Canada, which has not seen the same rapid growth in unconventional supply as the U.S. Finally, although global liquefied natural gas (LNG) supplies are abundant, LNG imports to North America are likely to be only slightly above last winter, as lower consumption will limit imports.”

The NEB said Canada has no lack of power supplies going into the winter either, due to reduced demand. “It is clear that the economic slowdown had an impact on electricity trade, which is down nearly 30% below the record levels set one year ago,” the NEB said in its outlook.

The country’s increased reserve margins have been driven by increased generation capacity, decreased industrial demand, price-driven demand response and energy efficiency programs. The NEB noted that Ontario recently introduced a feed-in tariff, the first of its kind in Canada, to stimulate renewable development by giving generators the certainty of selling into the grid for predetermined contract terms, including price. The board also said new construction, for both natural gas-fired and wind generation, has recently experienced financing difficulties related to reduced economic activity and lower energy prices. However, most projects are still moving ahead.

The outlook found that decreased demand, coupled with a high percentage of wind generation, led the Independent Electric System Operator to call for lower production from Ontario’s nuclear plants. In addition, as of July future nuclear expansions in Ontario are either suspended or canceled and refurbishments in Ontario and New Brunswick have been delayed.

The NEB said signs point to electricity demand growth trailing economic recovery in most jurisdictions, but at the same time, system operators and planners maintain the need for more transmission reinforcement, which will create options for generation sourcing. “Some jurisdictions are making progress on major projects to relieve bottlenecks (i.e., Ontario, Alberta and British Columbia), although facility siting processes are proving to be time consuming,” the NEB said.

Looking at the first half of 2009, the economic slowdown is affecting Canada-U.S. electricity trade, which is down approximately 15% from the previous three-year average and nearly 30% from record levels set last year. Canadian export revenues have dropped more than 50% year-over-year.

The NEB said Canadians can expect to see crude oil prices of US$75-80/bbl over the winter. “With the price of home heating oil closely tracking the price of crude, average Canadian heating oil prices this winter are expected to be higher than last year, when crude averaged about US$46/bbl,” the NEB said.

The NEB also updated the country’s efforts to reduce greenhouse gas emissions through the diversification of its energy supply mix. Natural gas-fired generation in Canada is expected to reach nearly 15,000 MW by year-end, a 50% increase since 2007, the NEB said. In addition, wind power generation is expected to surpass 3,700 MW by year end, more than double the capacity in 2007.

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