Link (Enbridge employees’ magazine)
February 16, 2001

“What impact is the rising price of natural gas having on the energy industry and on consumers? To get an outside perspective, Link recently talked to two industry experts, John Kinsey, portfolio manager and an oil and gas analyst, Caldwell Securities Ltd. and Tom Adams, executive director, Energy Probe.”

“Something we have to remember is that natural gas prices have historically been cyclical,” says Tom. “The current commodity price for gas reflects an imbalance in supply and demand. We expect that in a year or so the balance will be restored, and we’ll see more normal prices.”

“Not necessarily,” says John. He notes that the U.S. natural gas industry is relatively mature, and in a natural decline from a supply standpoint. Canadian gas has helped to keep the supply constant, but now companies have to move their exploration farther and farther north to find new sources. While John says things look promising, in the Northwest Territories, for instance, “It will still be three to five years before the gas is flowing south.” In the meantime? “I think natural gas prices will remain relatively high,” John says.

For energy pipeline and distribution entities, Tom says the current gas price experience and the experience now playing itself out in California’s electricity sector offers a critical lesson protect yourself from exposure to risk.

“The primary mechanism for doing that is to ensure that commodity prices are a flow through exposure only,” says Tom.

An upside of high gas prices, he says, is a heightened consumer awareness of the value of energy conservation. “We’ve had a long period of relatively low gas prices. This price shock has reminded people of the need to tighten up,” says Tom. “We’re seeing a conservation impulse across all sectors, including a renewed interest in home conservation upgrades. High gas prices are good for conservation but there is a down side. Many heavy energy users from cement plants to greenhouses are looking at conversion to less environmentally attractive fuels like coal. The dramatic effect of dual fuel users switching from gas to oil can be seen in the current premium for distillate over gasoline.”

Tom notes that energy conservation is a tough sell in a robust economy “People care more about what kind of Jacuzzi they’ll install than about what kind of attic insulation.” But he says utilities, like Enbridge Consumers Gas, are wise to keep passing on the conservation message.

“Giving customers more knowledge about conservation opportunities pays off. I’m sure lots of people are staring at their gas bill now and wondering what to do. But if they’ve received information on energy conservation, whether through bill stuffers or the company’s website, they are more likely to see the company as believable and more trustworthy.”

“Another message that entities like Enbridge should be getting out,” says John, “is that rising prices are not the company’s fault. In your business, you’re just a conduit from the well to the ultimate destination. Or to put it another way,” he says, “as you gaze upon an eye-opening bill, don’t shoot the messenger.”