It pays to be a consumer — and even more to be the government — in Canada’s chief natural-gas producing jurisdiction.
While producers and drilling contractors felt a pinch, Alberta home heating bills dropped 15% and the provincial treasury saved nearly two-thirds on a consumer subsidy program in the past six months of reduced gas prices. By the official end of heating season March 31, typical households in the chilly provincial capital of Edmonton spent just C$964 (US$820) on the annual fight to keep out the cold every Oct. 1 through March 31, show records of Direct Energy Regulated Services, the principal supplier.
Gas bills totaled C$1,137 (US$970) or C$173 (US$150) more during the frosty months of 2005-06 in the central Alberta region. In the 2006-07 heating season, prices of gas consumed in Alberta averaged C$7.11 per gigajoule (GJ) (US$6.35/MMBtu) or 22% less than the $9.13/GJ (US$8.15/MMBtu) a year earlier, Direct calculated.
Thanks to the calmer market, the Alberta Department of Energy forecasts costs of its residential and small-business “gas price protection plan” will come in at C$248 million (US$211 million) for the 2006-07 heating season. That is C$402 million (US$342 million) or 62% less than the record $650 million spent a year earlier.
Alberta prices stayed at less than half the heights of C$15/GJ (US$13.40/MMBtu) hit in 2005-06, when hurricanes hurt production in the Gulf of Mexico and fears of gas shortages fueled market spikes across North America, including as far away as northwestern Canada.
Stability will prevail for the first spring month this year. April bills for typical Edmonton households will be C$115 (US$98), Direct predicted in a monthly application for approval of regulated gas rates to the Alberta Energy and Utilities Board. Alberta’s consumer gas rebates stop every April and only resume each Oct. 1. But even in the northern climate reduced consumption as the warm season begins makes up for the annual withdrawal of consumer subsidies, provided gas prices stay calm.
Monthly central Alberta gas bills were C$113 (US$96) last April, when supply scares ended and prices settled down to the current monthly average level of about C$7/GJ (US$6.25/MMBtu). Typical Alberta households use 9 GJ (8.6 MMBtu) in April, down from 16 GJ (15 MMBtu) in March and less than half the annual peak consumption of 23 GJ (22 MMBtu) in frigid January.
The provincial government’s C$402-million (US$342-million) savings on 2006-07 gas rebates partly made up for reduced royalties collected on gas production. The Alberta Department of Finance has lopped C$1.6 billion (US$1.4 billion) or 22% off its current-year gas royalty projection for the fiscal year ending March 31, lowering expectations to C$5.5 billion (US$4.7 billion) from C$7.1 billion (US$6 billion).
The consumer rebate plan has cost the province about C$1.4 billion (US$1.2 billion) since its introduction in 2003. The program is scheduled to continue until the end of March in 2009. The program uses sliding scales to generate an effect of increasingly softening price increases when gas goes above C$5.50/GJ (US$4.45/MMBtu). Monthly subsidies peaked at C$7.29/GJ (US$6.50/MMBtu) in January 2006.
Direct made no price predictions for this year or the rest of the rebate plan’s lifespan, saying weather and other market conditions affecting the value of gas are too complicated to forecast.
“My crystal ball is unfortunately broken,” Direct vice-president Gary Newcombe said. “It’s a continuation of the roller-coaster ride.”
Growing numbers of households are learning how to use the Alberta gas-pricing system to greatest advantage by switching over to the province’s parallel market for deregulated retail gas sales. Timing is the key to making the most of Alberta’s unique retail heating-season pricing regime.
About 20% of consumers have made the change, Newcombe estimated. Only 4% of Alberta households used deregulated gas service two years ago. The prevailing Alberta form of deregulated retail gas contracts mirrors fixed interest-rate mortgages. Consumers lock in prices, initially by paying a premium over market levels at the time they sign the contracts.
But Alberta continues to pay gas rebates to households that make the switch to deregulated service. Consumers who lock in prices during market lows can wind up obtaining gas reduced to bargain-basement rates by the provincial subsidy.
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