A recent news item by Forbes begins with the statement “Natural Gas Prices Should Double Over The Next Year”. The article makes some good points:
- Shale gas production has stopped growing and conventional natural gas has been declining for the past 15 years
- There are currently only 92 rigs drilling for gas compared to 1600 rigs in 2008
- The oil-field service industry is in disarray and will take time to recover
- The March price for gas was the lowest CPI-adjusted price in 40 years
- EIA’s supply forecast suggests that the surplus will become a deficit later in 2016
Are we to believe the current bearish fundamentals, or the bullish prognosticators on the internet? We know from experience to expect the unexpected and that if everyone in the market believes the same thing, the opposite will usually happens. As far as price doubling, the current forward price for this coming winter is already almost double this summer’s price. The market has already adjusted for the longer term.
The Fraser Institute recently published a report rating Ontario’s conservation initiatives. Ontario has spent millions on conservation programs and marketed heavily. Yes, there has been success in efficiencies and cleaner power generation (including the elimination of coal) but have the programs been financial successful?
When conservation became a priority in Canada 15 years ago, Ontario was undersupplied and anticipating blackouts and brownouts. Action was required and conservation was a good place to start. At the time Ontario also had some of the lowest priced electricity compared to its neighbouring provinces and states. Fast forward to today, Ontario is now over supplied and has the highest priced power. Most of the increase results from Ontario’s sale of discount power to the U.S. while recovering the lost dollars from businesses through the global adjustment. High priced solar and wind have also contributed to a high GA. Green energy is the future but it must work financially as well to keep Ontario businesses competitive.
