Natural gas price drops 11% in July

John Spears
Toronto Star
July 10, 2001

The retail price of natural gas has dropped 11 per cent this month, and is likely to drop another 20 per cent or more early this fall, says Enbridge Consumers Gas.

That’s good news for gas users who decided not to sign long-term, fixed-price contracts last winter when gas prices soared to record levels.

Enbridge Consumers Gas has knocked off a surcharge of 3.9 cents a cubic metre as of July 1 – two months earlier than planned – because of falling prices.

That drops the rate to 32.1 cents a cubic metre for customers who are not locked into a fixed-price contract.

That price is likely to fall to 24 or 25 cents a cubic metre by early fall, said Janet Holder of Enbridge. And that’s where Enbridge expects prices to remain through next year’s heating season.

Over the course of a full year, an “average” home – three bedrooms, with four people using gas for both heat and hot water – would save about $400 at 25 cents a cubic metre, compared with the 36 cents they’ve been paying since March.

In fact, the average cost for the current year will be less than 36 cents.

Enbridge uses a year starting Oct. 1. For customers who haven’t signed fixed price contracts, it estimates what the price will be a year in advance, and charges customers that rate.

At the end of the year, Enbridge compares its actual cost of gas with its estimated costs. If it has overcharged customers, it gives them a refund or a credit.

If it has undercharged, it asks customers for an additional payment to make up the difference.

This past year, Enbridge set a price of 24.2 cents a cubic metre, but had to hike it to 32.2 cents on March 1 because of soaring prices.

It also slapped on a temporary surcharge.

Prices have steadily retreated since the spring, however. The spot price hit 11 cents a cubic metre for one day last week.

Enbridge wouldn’t say yesterday what it expects the actual average price will work out to be at the end of the current heating year.

Craig Alexander, senior economist with TD Bank Financial Group, said in an interview that lower gas prices should stick around for a while.

Gas inventories have increased this spring, he said – aided by moderate weather over much of North America so far this summer, which has limited the use of air conditioners. Natural gas is increasingly being used to fuel electric power generators.

Businesses that were ambushed by last winter’s natural gas price spike have also found ways to reduce their dependence on gas, he said.

Don’t feel too sorry for the gas producers, Alexander said. Even at current, lower levels, gas is selling for substantially higher prices than during the late 1990s.

That means they’ll have every incentive to keep producing and maintain a reasonable supply flowing into the market.

Tom Adams of Energy Probe reiterated his earlier advice to consumers that they should avoid long-term gas contracts for now.

Gas marketers are currently offering three to five-year contracts at prices ranging from 26 cents to 30 cents a cubic metre.

During the peak natural gas prices, marketers were offering to lock homeowners into contracts at more than 30 cents a cubic metre.

Like Alexander, Adams expects gas prices to remain at a moderate level.

“It would be crazy to be signing a gas contract now” at prices of 26 cents a cubic metre and up, he said.

 

But Alexander said that consumers who did sign contracts shouldn’t be kicking themselves.

Signing a fixed price contract is a bit like buying insurance, he noted. You don’t complain about wasting money on an insurance policy if your house doesn’t burn down.

The point of locking in a price is to have certainty, he said, and consumers with a contract still have that.

 

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