Explainer: How the global energy crunch came to Canada

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When the world’s energy crisis hit Blake Schaefer’s door, he signed a fixed-term contract for natural gas because he believed fuel prices would likely remain high for years.

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“In the probably 10 years I’ve lived here, this is the first time I’ve locked in my gas price,” said a professor of energy economics at the University of Calgary.

After seeing a jump in futures prices in the natural gas markets in North America, Prof. Schaefer made his decision a few weeks ago.

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He predicts that when consumers assess the effect of higher prices on their heating bills at home, many of them will act by choosing the certainty of a predetermined commodity price for the duration of the contract.

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Last month in Alberta, Prof. Schaefer said the math makes sense, even though the downside is that if natural gas prices crash, consumers will be left paying bills at contracted prices.

Natural gas markets have traditionally been influenced by supply and demand within continents. But the recent jump in prices to record-high location for shipments of liquefied natural gas to Asia has had a ripple effect, contributing to upward pressure on fuel prices in Europe and North America.

A combination of factors has driven up prices in Canada, but rather than just domestic factors as in previous rallies, this time the global energy crisis plays a significant role.

“We are really being pulled in by the rest of the world,” Prof. Shaffer said. “It comes all the way back here being pulled even to lowly Alberta.”

The options for signing up with natural gas marketers vary from province to province, and consumers are required to check the fine print in any contracts such as having flexibility or not going back to variable rates.

Third-party marketers in British Columbia are offering five-year contracts for as low as $4.99 per gigajoule – higher than current variable rates in the province but lower than futures markets.

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FortisBC, the largest distributor of natural gas for homes in BC, raised its variable rate for the fuel to about $3.85 per gigajoule, effective October 1, up 35 percent from the previous quarter’s charge of about $2.85 per gigajoule. is more.

The latest variable rate at FortisBC is at the highest residential level in seven years, but since commodity fees account for a third of the total bill, a typical household can expect to pay 9 percent more than before.

Jason Wolfe, director of energy solutions at FortisBC, compared the decision to opt for fixed-term contracts with mortgage purchases. “Like a mortgage, you can have a fixed rate or a variable rate. It depends on your risk appetite,” Mr. Wolfe said. “It’s a personal choice.”

In the United States, natural gas storage levels today are 14 percent lower than a year ago, according to the U.S. Energy Information Administration. US benchmark The spot prices of natural gas in Henry Hub of Louisiana have nearly tripled in the past year.

“Natural gas supply is low and demand is high. And there’s not enough gas in storage to make sure we have enough of the item this winter,” said Jeff Tonken, chief executive officer of Calgary-based Birchcliffe Energy Ltd.

Investors have turned their attention to Birchcliffe because it holds onto natural gas, allowing the producer to ride out the commodity rally. Birchcliffe’s share price has increased six-fold since April 2020.

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But Mr. Tonken cautions that from a macroeconomic perspective, the ongoing transition to renewable energy means fewer institutional investors are willing to stick with oil and gas companies in the longer term, while banks are reducing the size of loans. Huh.

The resulting financial squeeze meant that producers could not easily scale up drilling to increase energy supplies, as the situation was exacerbated by a shortage of skilled workers in the area.

“When you have a lack of investment, the energy supply is going to fall and demand is going to rise,” Mr. Tonken said.

While industrial users of natural gas are feeling the pinch, be it power plants, oil sands or petrochemical facilities, he said higher commodity prices will increasingly attract the attention of Canadians because of the impact on their budgets.

“It’s going to increase the cost of keeping your home warm in the wintertime,” Mr Tonken said.

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