Natural Gas Update
In 2007 home owners dependant on natural gas saw some relief with respect to natural gas commodity prices. With ample gas in storage and a couple mild winters in their pocket, prices dropped significantly from the highs witnessed in early 2006. However, this reprieve is scheduled to end very soon. Natural gas prices have been on the rise. It’s not just a rise it’s been a steep incline since January 2008. Numerous articles in local papers have been warning home owners over the past couple of months that Utilities (Enbridge and Union) are going to be forced to raise rates due to this upswing in market prices. The above graph shows the history of utility natural gas prices in Ontario along with the July 1, 2008 expected increase. Enbridge announced customers have been told to expect a 40% increase in gas commodity price on July 1, 2008 and Union Gas will follow as well.
Short Term Driving Factors: weather, gas storage levels and the US economy
Continuing cool weather, sagging imports of LNG, lower inventories, and increasingly tight global markets for all energy commodities have contributed to the recent rise in prices. Uncertainty over natural gas demand by the electric power sector during the summer and the possibility of hurricane-related supply disruptions later this year could impact prices in the coming months. Almost all new electricity capacity brought on line is generated by natural gas, rather than oil, coal, water or nuclear. As the price of crude oil increases, some industries switch to natural gas. Many developed this dual fuel capability when gas prices skyrocketed in 2001.
Long Term
Long term prices are affected by many factors that are difficult to predict, including North American and worldwide economic growth, advances in technologies, and future public policy decisions both in North America and in other countries.
- Higher price projections for crude oil and natural gas
- Higher projections for delivered energy prices, reflecting both higher wellhead and higher costs to transport, distribute
- Slower projected growth in energy imports, both natural gas and oil
- In 2000, oil prices were about $25/barrel, and gas prices were 12cents/m3. Now gas spot market prices are about 37 cents/m3, while oil prices reach almost $130USD/barrel. Currently oil prices are forecasted to reach $150 in 2010 and $200 in 2012.
All of these will provide price support for natural gas in the future.