Brian Zinchuk is editor and owner of Pipeline Online
The price of natural gas is going up. That’s good for producers, but it means an end to an era of very-low gas prices for consumers. Photo by Brian Zinchuk
REGINA – The era of dirt-cheap natural gas might be coming to an end in Saskatchewan, for the foreseeable future. For consumers, it means prices are going up, but it also means more cash for producers.
On Sept. 10, the province’s natural gas utility, SaskEnergy, announced it has applied to the Saskatchewan Rate Review Panel to increase its commodity rate, which would continue to be the lowest in Western Canada and the second lowest in the country. In nearly all cases, such requests are approved by the Rate Review Panel.
The proposed commodity rate of $3.15 per gigajoule (GJ), up from $2.58 per gigajoule, would increase the average residential customer’s bill by $5.65 per month. SaskEnergy’s commodity rate is a pass-through of market costs, with no profit or loss earned, according to a SaskEnergy press release.
Small to large commercial customers will see an 11.9 to 14.4 per average annual increase, resulting in an increase between $28 and $360 per month. For small industrial customers, the average annual increase will be 17.8 per cent.
“Natural gas prices in the open market have essentially doubled since SaskEnergy decreased the commodity rate in 2019. Increased natural gas demand for power generation coupled with higher liquefied natural gas exports are contributing to increased commodity prices,” said Ken From, president and chief executive officer, SaskEnergy.
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GasAlberta.com indicated on Sept. 10 that AECO C future pricing is $4.20 per gigajoule for October, 2021, $4.54 for November, $4.74 for December, $4.80 for January, and 4.73 for February before coming down for the spring and summer of 2022. Notably, at no point in 2022 are AECO C futures below $3.33 per gigajoule. As a result, SaskEnergy’s rate request at $3.15 per gigajoule is still below all future prices for the next year on the AECO hub.
SaskEnergy’s 2020-2021 annual report noted, “Traditionally, most natural gas in Saskatchewan (TEP) is priced at a differential to the AECO price. This AECO to TEP differential for the 12 months ending March 31, 2021 averaged $nil compared to $0.40 per GJ for the year prior.”
When gas prices took a tumble roughly 14 years ago, Saskatchewan’s domestic gas production fell off a cliff. Targeted gas drilling went essentially extinct, with next to no gas-specific wells being drilled in this province for most of the past decade. Our gas production is now largely based on associated gas production that comes with oil production. As a result, Saskatchewan went from being a net gas exporter for the period of 1988 to 2009 to a net importer that year.
Source: SaskEnergy 2020-21 annual report
The higher natural gas costs associated with this rate increase will result in customers owing SaskEnergy in the Gas Cost Variance Account (GCVA). The GCVA captures the discrepancy between the market price of natural gas and the commodity rate, according to SaskEnergy.
“While this proposed rate adjustment reflects higher natural gas prices, SaskEnergy will remain competitive with other Canadian jurisdictions and will continue to provide affordable, stable natural gas rates for our customers.”
SaskEnergy pointed out that it has been offering its lowest commodity rate in more than 20 years. The proposed adjustment would be the corporation’s first commodity rate increase since 2014, following four decreases.
If approved, the new rate would take effect Nov. 1, 2021. Additional information on the rate review process, including a full copy of SaskEnergy’s commodity rate application, will be available on the Saskatchewan Rate Review Panel website at www.saskratereview.ca.
The federal carbon tax does not impact SaskEnergy’s rates, though there is an impact to customer bills, according to the Crown corporation. As a distributor of natural gas, SaskEnergy collects the carbon tax from customers and remits it to the federal government.
Based on the amount of natural gas delivered to a customer, the carbon tax charge on natural gas is a rate set by the Government of Canada with scheduled increases on April 1 each year to 2030. On April 1, 2022, the carbon tax will be $50 per tonne of CO2 equivalent, rising to $65 per tonne in 2023, $80 per done in 2024 and $95 per tonne in 2025, rising $15 per tonne each year until the carbon tax reaches $170 per tonne in 2030.
Launched Oct. 4, Pipeline Online is Saskatchewan’s Energy News. You can find it at PipelineOnline.ca, on LinkedIn., Facebook and Twitter.
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