GoEnergy

Author: Steve Sabean

  • Dawn – Natural Gas Storage Gateway To North America

    Photo by zorandimzr/iStock / Getty Images Photo by zorandimzr/iStock / Getty Images

    On a Union Gas direct purchase contract, accounts must balance at least 3 times per year:

    1. At contract year end
    2. Winter checkpoint: February 28
    3. Fall checkpoint: September 30

    Currently the Dawn storage facility in southwestern Ontario is near capacity (posted max capacity is 279 Bcf). This is causing the utility – Union Gas – to currently restrict activity. Typically storage injections and withdrawals occur seamlessly every day. Now however, only certain types of interruptible storage activity is allowed.

    Current restrictions

    Due to high demand for storage injection services Union Gas is restricting activity. Transactions can still be requested however chances are lower tiered interruptible transactions will be cut. Here are some examples of different storage services and the priority ranking:

    1. Firm In-franchise Storage and Distribution services and firm Ex-Franchise services
    2. In-franchise Interruptible Distribution storage services
    3. Balancing (Hub Activity) <= 100 GJ/d; Balancing (Direct Purchase) <= 500 GJ/d
    4. Balancing (Direct Purchase) > 500 GJ/d
    5. Balancing (Hub Activity) > 100 GJ/d

    Overall importance of Dawn storage to North America

    The Dawn Hub is an underground natural gas storage and market centre near Sarnia, Ontario operated by Union Gas since the late 1950s. Ten major pipelines currently connect to the Dawn Hub making it one of the most liquid natural gas trading points in North America with trading activity increasing every year. Dawn storage is the largest underground natural gas storage facility in Canada.

    Shale gas has influenced the price of natural gas everywhere, including Ontario, however, currently shale gas production from the Northeast US has limited connecting pipeline to Dawn or Ontario. The demand for gas in Ontario has decreased because supply from US shale has offset the supply from Ontario. Traditionally gas flowed from Alberta, through Ontario and onto the US northeast. This is changing as new pipelines become operational. More pipelines are connecting US shale gas to Ontario and expanding the activity at Dawn.

    All North American energy marketers are active at Dawn and over 100 companies actively trade at Dawn. (Union Gas)

    Utilities and customers obtaining access to dawn storage

    Dawn is important for natural gas buyers as each year the local utilities are increasingly accepting more gas transactions at Dawn as they reduce their reliance on gas supply from the Western Canadian Sedimentary Basin (Alberta) and increase reliance on supply sourced at Dawn or upstream of Dawn.

    As of November 2016, the Quebec gas utility, Gaz Metro, accepts gas only from Dawn as they have phased out TCPL completely. This is a huge change since previously, Gaz Metro only accepted base obligated deliveries from TCPL (Empress).

    For Union Gas south, all new direct purchase customers as of January 1, 2017 will be allocated 100% Dawn as the obligated delivery point. As part of a continuing shift to move obligated deliveries from Parkway to Dawn, Union Gas is expected to offer the next shift sometime in 2017.

    Union Gas north is planning to begin shifting  some of the obligated delivery points from Empress to Dawn in January 2017 and will reallocate delivery points every November 1 to reflect Union Gas’ upstream transportation portfolio.

    Enbridge implemented two phases for different customers. Phase 1 began in November 2015 allowing customers to shift their obligated deliveries to Dawn on a limited basis. Phase 2 begins in November 2017 and will allow more customers to select Dawn as a delivery point.

    Natural gas storage – how it works

    Underground storage facilities are depleted reservoirs in oil and/or natural gas fields, aquifers, and salt cavern formations. Dawn storage is made up of 23 individual reservoirs about 500 m underground. All reservoirs are connected by a gathering system and then connected to the utility pipeline system. Nine large compressors move natural gas to and from the reservoirs. Storage injection season typically begins April 1st and ends October 31st . On November 1st withdrawal season begins thereby allowing a constant flow of natural gas during the high demand heating season and low demand summer season.

    Summary

    Dawn storage is currently near capacity and gas prices are low compared to just a few weeks ago. This winter is still expected to be colder than normal with a La Nina weather forecast. The Union Gas February checkpoint will arrive quickly and if this winter is anywhere near the forecast, prices will be strong for February balancing gas. This winter more gas will be able to move from Dawn to the Toronto area and further north. This could lead to stronger demand at Dawn and offer basis strength to the hub.

  • Are You Ready For The New Cap and Trade Environment?

    Your natural gas bill is going up by $66,000. If your business uses 2,000,000 m3/year, the new 3.3 cent cap and trade tax beginning January 1st, means your annual natural gas costs will be $66,000 higher in 2017.

    Even your home natural gas bill will see an increase in the neighbourhood of $79. If you are creating budgets for next year, this would be a good line item to include.

     

    How will you be charged?

    Under Ontario’s cap-and-trade program, Ontario gas utilities are required to purchase emission allowances, administer the program and bill for the natural gas your business and home consumes.

    The charge will be 3.3 cents per cubic metre based on actual metered natural gas consumption. The charge will be added to the delivery portion of your natural gas utility bill.

    The price of emission allowances will vary with supply and demand, and can change over time. In January 2017 the price is expected to be 3.3 cents per cubic metre of natural gas used. In addition, gasoline will cost about 4.3 cents more per litre at the pumps.

     

    Who will be affected?

    All natural gas consumers are affected as well as gasoline users and other carbon emitters. Companies that emit less than 25,000 tonnes of carbon dioxide equivalent a year will be automatically charged by their local natural gas utility. 25,000 tonnes is equivalent to 13 million m3/year.

    Businesses with annual emissions over 25,000 tonnes will be required to buy their own emission credits. A facility between 10,000 and 25,000 tonnes (5 million to 13 million m3/year), may opt into the cap-and-trade program as a voluntary participant. Voluntary participants may register in 2016 if they meet the criteria set out in the Cap-and-Trade Regulation. There will also be opportunities to register as a voluntary participant in 2017 or after 2017.

    To be a part of this program, you must:

    • submit a 2015 greenhouse gas emissions report and verification statement
    • submit a voluntary participant form
    • register to use the Compliance Instrument Tracking System Service (CITSS)

     

    What will happen to the proceeds from the Cap-and-Trade Program?

    Among other plans to reduce emissions, the government intends to create incentives for the purchase of electric vehicles, increase the availability and use of lower carbon fuel, improve public transportation, and provide incentives for apartment building energy retrofits.

    The provincial government may revise the plan and must review it every five years.

     

    Beyond Ontario

    There are only two jurisdictions in North America that have been active in cap and trade since 2014: California and Quebec. The auctions have not gone well this year leaving the governments short of their revenue targetsOntario has budgeted for about $1.9 billion annually from cap-and-trade auctions.

    Ontario’s cap-and-trade program starts up in January 2017, but for the first year the auctions will be isolated within the province. The joint auctions with California and Quebec start in 2018, and the total revenue from those auctions will be split proportionally between the three jurisdictions. There is also legal and political uncertainty in California. A lawsuit arguing that the program is an unconstitutional tax is working its way through the courts.

    Starting in 2018, the Canadian federal government will impose a national price on carbon to meet its obligations under the Paris Agreement.

     

    Summary

    Cap and trade is here and begins January 1, 2017. Plan accordingly. The government will be collecting a lot of money under the program. Some of that money will go back to industry in the form of incentive programs. Look for ways to benefit, not just pay the increases on the bill. Voluntary participation may sound enticing, but may not be worth the time and effort. There will be many opportunities in the future to on-board should programs prove lucrative.

  • Renewable Energy Projects Cancelled

    In the news today…

    “Ontario Government scraps plan for $3.8 Billion in renewable energy projects.” Ontario has had too much electricity generation for years. Wind and Solar projects, combined with a general oversupply of electricity, has led to an ever increasing Global Adjustment(GA). The GA may not go down to a reasonable level in the near future, but maybe it will stop its relentless pace upwards.  

    The same news article quotes the PC, Green, and NDP governments commenting on the Liberal announcement. Also included are comments from The David Suzuki Foundation and the Canadian Wind Energy Association. All have very different views on what generation should be cancelled, how to tackle greenhouse gas reductions and how to improve the electricity situation in Ontario.

    Two weeks ago it was announced that the 8 percent provincial tax on electricity will come off bills in January. This is the same start date that the cap & trade costs will begin to appear on the natural gas bills.

    The full article can be found here:

    https://www.thestar.com/news/queenspark/2016/09/27/ontario-liberals-scrap-plans-for-38-billion-in-renewable-energy-projects.html

  • Hurricane Season Begins June 1

    Photo by ronniechua/iStock / Getty Images
    Photo by ronniechua/iStock / Getty Images

    Hurricane season officially begins on June 1 and ends November 30. The Atlantic hurricane region includes the North Atlantic Ocean, Caribbean Sea, and Gulf of Mexico. The National Oceanic and Atmospheric Administration just released their hurricane forecast for the six-month season. It is expected that it will be a near-normal hurricane season with 4 to 8 Hurricanes, including 1 to 4 major hurricanes.

     

    The Ontario government has ambitious climate change action plans including the elimination of natural gas heating by 2030 and a minimum of 12% of all new vehicles to be electric by 2025. This will help meet the target of completely eliminating greenhouse gas emissions by 2050. Meeting these targets through subsidies and rebates will be expensive. Where will the money come from to pay for these plans?

     

    Ontario’s new cap and trade compliance begins on January 1, 2017. Details of the program was posted on May 19, 2016. The government has indicated that the funds collected (over $1.8-billion per year) will go towards greenhouse gas reduction efforts.

     

    Cap and trade will affect each business differently. Free allowances will be available, however, facilities exceeding their free carbon dioxide (CO2) allowances must purchase additional allowances at the auction. Similarly, facilities that emit less than their permitted allowances may sell their unused free allowances at the auction. The first auction is scheduled for March 2017.

  • Peak Electricity Prices Rise in Ontario

    Photo by zhengzaishuru/iStock / Getty Images
    Photo by zhengzaishuru/iStock / Getty Images

    On May 1st time-of-use (TOU) Ontario electricity rates increased with on-peak now at 18 cents per kWh. According to a government spokesperson, the increase is due to a mild winter resulting in lower usage. Not a very good message to electricity users that are already paying a premium because of green energy initiatives. Although most businesses are not billed on TOU, similar price increases are occurring with Ontario businesses. While the electricity commodity price stays low, the overall bill is going up as other line items such as the GA increase.

     

    Current Ontario Electricity Generation Capacity

    •        Nuclear: 13,014 MW
    •        Gas: 9,907 MW
    •        Hydro (water): 8,841 MW
    •        Solar: 2,078 MW
    •        Wind: 3,908 MW
    •        Bio: 599 MW

    Projected Ontario Electricity Generation Capacity by 2020

    •        Nuclear: 11,311 MW
    •        Gas: 10,868 MW
    •        Hydro (water): 9,024 MW
    •        Solar: 3,851 MW
    •        Wind: 5,681 MW
    •        Bio: 659 MW

    (Source: Independent Electricity System Operator)

  • Incredible fire destruction in Fort McMurray

    I hope everyone can assist the people of Fort McMurray any way they can to help them get through this tragic event.

    The fires in Ft. McMurray are likely to expand into a weekend risk. The facilities being shut down are due to precautionary measures and not due to direct fire hit but will still lead to a monthly average oil drop of about 150 kb/d for May on a best case scenario of the fires not having any impact on any of the production or logistic assets and workers being able to quickly return to work. Given that the fires are not yet out, the impact could be higher than the best case. (Petromatrix)

    The impact on Alberta natural gas could also become significant as Alberta and BC gas consumption gets turned back with many oil sands production getting temporarily shut down. 

  • Natural Gas Prices Should Double

    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.