Some bad news for homeowners – natural gas prices are expected to rise dramatically over the next few months, due to the colder than average winter and ongoing conflict between Russia and Ukraine.
The rise will be a shock because Canadians are used to bargain natural gas prices; huge inventory surpluses have kept natural gas prices unusually low for the last five years, but they are now depleted. From one year ago the Henry Hub natural gas spot price, widely used as a benchmark cost for the commodity, has shot up almost 8 per cent. Now traders are hedging their bets that natural gas prices will go higher.
This means homeowners will see heating costs rise, especially if this bull-run remains into next winter. Enbridge gas in Ontario has already spiked rates by 40 per cent, other suppliers of natural gas could follow. Here is what we know about natural gas today.
The Impact of the Russia-Ukraine Conflict
The conflict between Russia and Ukraine has centred on the energy supply of natural gas to Europe. The conflict started because Ukraine agreed to closer ties to Moscow than the E.U. But now that that their president has fled the country that agreement is null and void.
Russia has a desire to control the supply and cost of the commodity to Ukraine and E.U. nations. Russia also supplies almost all of Ukraine’s natural gas and has until know has done so at a deep discount. Russia announced this week that subsidy is ending, with prices to hike by 150 per cent. Russia is also threatening to reclaim billions in discounts it has already giving to the Ukraine in the past. These moves are putting pressure on natural gas prices worldwide as Ukraine and the E.U. search for alternatives to supply them with the commodity.
A Harsh, Long Winter on the Home Front
Anyone living in the north eastern United States and throughout Canada knows this has been the harshest winter in decades. Based on gas usage, Winter 2013/14 has been the coldest in over 30 years, according to Commodity Weather Group LLC, a forecasting company in Maryland.
Canada’s largest city, Toronto, issued more extreme cold weather alerts than ever before, which has put huge pressure on natural gas supply. Up until this winter there had been a glut of natural gas in North America driven by milder winters and the abundant availability of shale gas reserves in North America. The implementation of new techniques like horizontal drilling and hydraulic fracturing led North America to a sizable excess of gas supply. That is no longer the case.
Ontario Residents First to Feel the Hike
Enbridge gas has started charging its customers in Ontario 40 per cent more for natural gas. The increase was approved by the Ontario Energy Board and purportedly could cost Ontarians an extra $400 per household annually.
Critics say this hike is a cash grab for the already rich natural gas companies. The supplier says this is to contend with a longer and colder than normal winter and the hike in natural gas futures. The energy board says the hike is for the interim and could be reversed if circumstances change. The increase only affects the gas that is supplied to residents, not the customer charge, delivery charge or transportations costs; those will remain the same. The gas distributors say the higher prices reflect the rising cost of the commodity after a particularly long and cold winter. Ontario’s other two natural gas suppliers Union Gas and NRG have also applied to increase rates.
How Can Consumer Counter the Increase?
The best ways to cut down your natural gas costs is to use less of it. Tactics like sealing your windows, stopping drafts from under your door, or using a low flow shower head can contribute to savings. All of these little changes will make a big impact on your total natural gas bill. Enbridge also offers a number of tips to cut your natural gas consumption. Since spring is here this could be the best and easiest time to get your home ready for next winter.