Some Thoughts on Natural Gas in Alberta in 2021

Listening to the mainstream media talk about the energy market during the last months caused a mad rush of consumers to sign up for fixed energy prices.  Some people are in panic mode to lock into a fixed contract and get off the variable rate.  It seemed like an eerie feeling of déjà vu, almost like those consumers in the past who were out hoarding toilet paper last year for fear of running out during the early days of the Covid Pandemic. 

The local press isn’t doing customers a favor by painting a picture of natural gas shortages and skyrocketing natural gas prices.  

We are not at risk of running out of natural gas.  Understand that the media frenzy is driven by problems being faced by consumers in Europe, not Alberta. Yes, it is true, prices in Alberta are going up, but not as significantly as elsewhere in the world. 

Let’s keep things in perspective.  As always: what goes up also comes down, and consumers on the Variable Rate plan are typically the winner in the long run.  Most importantly, it should also be remembered the actual cost of gas represents only 25% of the customers’ total invoice. If the cost of gas goes up by a dollar per GJ, it will result in a 5 to 6% increase in the customer’s utility invoice.  Invoices are not going to double. A change in the usage rate for natural gas does not affect any of the distribution or government regulated charges (the bottom half of your bill).

As mentioned, the reports in the media, for the most part, are focused on Europe and other Global markets.  While the challenges facing those markets are real, they are not causing prices to spike here in Alberta.

Nevertheless – the stories will scare some consumers here in believing the sky is falling and they better lock into fixed energy rates to protect themselves.  Price protection is a good consumer strategy for utilities but it is important to understand what is feeding the frenzy.

Why has there been a surge in gas prices in other markets?     

• There is not one single cause for the shortage, but people, companies, and countries generally have to compete with each other to buy up gas.
• Demand is also high as the world comes out of successive lockdowns and businesses try to make up for lost time – many will need lots of gas for this.
• Meanwhile, gas production is also lower, and the weather was less windy over the summer – meaning more gas was burned for electricity.
• EU policy is being blamed as “poorly thought-through decisions” by Brussels officials for creating “serious imbalances” in European energy markets.
• Gas price rises in Europe are just one sign of a broader energy crunch that is playing out around the world.

Focus on what is happening here in Alberta?     

• We put up a ‘Sold Out’ sign on our fixed rates for Natural Gas.  
• The sign will be flipped over in about three weeks as we enter November, and new rates will be posted.
• Do not panic.  Here are indicative numbers.  Look at the actual numbers over the summer months. Our costs ranged from $4.092/GJ to a high of $4.678/GJ.  Based on indicative prices posted by Shell Energy, AECO prices will move into the $5/GJ range and by April fall back down to $3.47/GJ.
• The energy portion of a consumers bill represents about 25% of the total invoice – as such, when the cost of natural gas increases, the real impact is dampened by the fact that 75% of the other charges are regulated and relatively flat.      

The media should be focused on the volatility in the electricity market, not the gas market. Another blog post of ours address the current electricity market.

In Alberta, overall most consumers, whether on Fixed or Variable Rates for natural gas should not be in for too big of a price shock this winter. Conversely, for electricity, this year’s price increases and volatility make switching to a Fixed Rate the better option.