News & Updates

Benefits of a Deregulated Market

Dec 4, 2012

Deregulation - what does it mean?

For many years the gas industry was heavily regulated -- there were many rules about who could buy and sell natural gas. Since 1985 many of those restrictions have been removed. For example, prior to 1985, an Ontario customer could only buy natural gas from one source -- the natural gas utility that served their area. Today, through a process called direct purchase, customers have many more buying options. That means an industrial, commercial or residential customer can buy gas from a marketer, a producer or their local utility, like Union Gas. Whoever they buy it from, the local utility still delivers the gas to the customer.

How can I buy natural gas?

Today, you can buy your natural gas from your local gas utility or you can choose to buy it from a retail energy marketer or broker. When you buy from the local utility, you are receiving a *Consumption* Based billing program. Whereby you pay for what you burn every month at the Utilities quarterly (lagged) fixed price rate. When you purchase through a direct purchase marketer/broker, be sure to know what your term and rate are. Each Direct Purchase Natural Gas provider will have differing terms with varying rates. The most common among these are 3-5 year fixed rates. Other Marketers may have monthly float options as opposed to only yearly fixed rates.

Deregulating the natural gas market

Choosing your natural gas supplier is a big part of deregulating the natural gas market -- but it's not the only part. There are also rules about moving gas between provinces as well as rules for moving gas in and through local townships and communities. Here's a quick look at natural gas markets - then & now.

Then -- the regulated market

Delivering natural gas to communities is very expensive. To encourage the growth and use of natural gas, the Ontario Government granted supply monopolies to natural gas utilities. This helped consumers avoid paying for the additional costs of competing and overlapping gas delivery systems. However, in the place of price competition from other competitors, the government insisted that natural gas prices be regulated and protected. So the Ontario Energy Board (OEB) reviews the prices that gas utilities charge for their delivery services.

The Utility earns its profit from the rates charged for delivering natural gas. These rates and earnings are reviewed by the Ontario Energy Board. We cannot change either the price of the natural gas or its delivery price without first getting approval from the Ontario Energy Board. 

Now -- a less regulated market

Today's market is not completely regulated. Gas utilities continue to hold a franchise that allows them to deliver natural gas to an area without competition (if we didn't, there would be no incentive for gas utilities to expand into communities that are not currently served). The OEB continues to monitor and approve all our delivery costs and the gas prices of its regulated utilities.

 

OEB'S ROLES IN NATURAL GAS RATES

Mandate

The Ontario Energy Board oversees the province's electricity and natural gas sectors through effective, fair and transparent regulation and in accordance with the objectives set out in the governing statutory framework.

Mission      

To promote a viable, sustainable and efficient energy sector that serves the public interest and assists consumers to obtain reliable energy services at reasonable cost.

 Natural Gas

The Ontario Energy Board Act, 1998 sets out guiding objectives for the Board:

  • To facilitate competition in the sale of gas to users.
  • To protect the interests of consumers with respect to prices and the reliability and quality of gas service.
  • To facilitate rational expansion of transmission and distribution systems.
  • To facilitate rational development and safe operation of gas storage.
  • To promote energy conservation and energy efficiency in accordance with the policies of the Government of Ontario, including having regard to the consumer’s economic circumstances.
  • To facilitate the maintenance of a financially viable gas industry for the transmission, distribution and storage of gas.
  • To promote communication within the gas industry and the education of consumers.

In the natural gas sector, the Board regulates Ontario's natural gas utilities which are required to submit the rates they propose to charge their customers to the Board for review and approval.

The OEB licenses all marketers who sell natural gas to residential and small commercial consumers.

The Board is required to determine if the construction of a natural gas pipeline is in the public interest by considering need, safety, economic feasibility, community benefits, security of supply and environmental impacts. Each municipality may grant a gas utility the right to deliver gas service and use road allowances or utility easements within its borders. The specific terms and conditions of these franchise agreements between the municipality and the utility are subject to Board approval.

As well, the Board approves geological formations that are suitable to store natural gas and determines the compensation payable to landowners when storage pools are situated on their property, if the parties cannot come to an agreement among themselves.

Board approval is also required before a natural gas utility can sell its distribution system or amalgamate with another distributor.

The Board does not regulate competitive services. In the gas sector these include the sale of gas (commodity), water heater rentals and repair or maintenance services. These products and services are competitive services and can be obtained from various companies.

Natural Gas Rate Updates

Natural gas utilities apply for a quarterly rate adjustment to reflect the difference between the forecasted price for natural gas in the next 12 months and how much it actually costs. This is where the previously mentioned “lagged” quarterly price occurs. As during those 3 months the price on the open market fluctuates, thereby making the utility rate lagged in regards to the actual market rate. In Ontario, utilities pass the cost to purchase the gas on to consumers, with no markup. However, if a drastic price escalation occurs during rate adjustments, the OEB can approve a retro-active billing, whereby the utility is granted permission to re-bill every customer for the difference in price during that rate period on the customer’s consumptions during that quarter.

These quarterly adjustments reduce the risk of large, one-time payments (retro-active bills) or rebates.

Supply disruptions caused by unforeseen events, such as severe or abnormal weather can impact the market price of natural gas.

Rate adjustments are  implemented January 1, April 1, July 1 and October 1, after the Board reviews the utility’s application.

Is your gas supplier following fair business practices? Find out on the following website. Canadian Energy Strategies, inc, has always taken extreme caution in working to maintain fair business practices:

http://www.ontarioenergyboard.ca/OEB/Industry/Rules+and+Requirements/Compliance+and+Enforcement/Enforcement+Proceedings

 

Hedging Winter Term Gas Use

Nov 1, 2012

Winter Gas Pricing

What is the Winter (“Withdrawal”) Season?

The Withdrawal season consist of a 5 month season, November 1 to March 31, whereby the demand for natural gas is greater than the “injecting” supply. During the winter months Natural gas is pulled out of storage facilities to meet the peak winter heating demands of residential, commercial and Industrial end users.

Factors Influencing Natural Gas Prices:

 

winter pricing

        

 

 

 

 

 

 

 

 

(Source: EIA.GOV)

1)      Weather: Typically the colder temperatures in winter spark an increase in demand for heating purposes. This increase in demand typically yields higher prices in the winter and as the demand tapers off come the warmer summer months, so does the price. However, an extremely warm summer can cause the price to rise as natural gas fired electricity generating plants ramp up to meet the air conditioning electricity needs. Warmer Winters on the other hand, as we experienced this last winter, result in less demand for natural gas for heating purposes. As demand falls, the supply stays stronger than expected resulting in downward pressure on natural gas prices.

 

2)      Economy: The state of the economy (Primarily U.S) has a significant effect on the short term pricing of natural gas. Fairly straightforward, as the economy picks up so does demand and the same is true the in a downward economy.

 

What options are available to either hedge or budget for Winter Natural Gas Costs?

Direct Purchase Customers: As those clients who have sourced a supplier for their natural gas know, when the winter season approaches, you have choices for how you want to manage your natural gas pricing. Whether, you choose to lock in all your volumes at a given price for 2, 3 or even all 5 winter months, or only fix 50% of your gas usage as a hedge against rising costs the choice is in your hands. As many of our clients on Direct Purchase will attest, having the ability to manage your natural gas costs not only through the winter, but on a monthly basis, has a direct impact on their bottom line by having full control over what their summer and winter pricing looks like.

System (Utility) Supply: Using a system supply you have zero control over your winter term billing. The system is required to bill you every month for your gas usage. However, for those on system supply, you may be wondering: “won’t my summer rebate help mitigate any increased costs this winter?

The answer to that is ultimately NO. The biggest difference between Utility supply and CESi supply is that on the Utility you pay on a consumption basis (e.g. whatever you burn that month, you pay). This means the majority of consumers who use 80% or more of their natural gas in the winter, are only receiving the credit/rebate on 20% of their consumption. Therefore, clients that fit this kind of natural gas usage are effectively over paying in the winter only to be mildly reimbursed in the summer.

With CESi, you pay on a “deliveries” basis based on your Daily Contracted Quantity (DCQ). Your DCQ is calculated by taking the total of 12 months consumption, divide by 365, and you are left with the amount of gas you are anticipating to burn on average every day. The impact being for most natural gas users whose consumption is typically higher in the winter due to heating demand do not pay on their higher consumed volumes. Rather they are receiving an interest free gas loan. This loan is gradually reduced over the summer when natural gas prices historically soften. If your gas supply is still out of balance we can buy or sell gas on your behalf to avoid any penalties from the utilities. This gives you the most flexibility and allows you to forecast your upcoming gas costs!

 

For more information regarding how you can control your winter gas costs contact us and we'll be happy to review your current contract or burning profile and provide expert analysis.

Back to the differences between consumption and deliveries billings, we see that again as a user in a ABC contract, you have no control over the volume you are billed for each month. If your productions double in the winter term, you will be paying the full amount for your gas usage during the more expensive winter months. If you were on a CESi Strategic billing plan, we would be able to mitigate the high winter priced months with cheaper summer gas to bring your consumptions and deliveries into balance by year end all while successfully achieving an lower average price!

 

Sources

http://www.naturalgas.org/business/demand.asp#factorshort

Fracking Part 2

Oct 11, 2012

Environmental Hydraulic Fracturing “Fracking” Concerns

Whether you have seen the documentary movie “GasLand” or not, this picture is sure to spark interest in the environmental safety concerning Fracking and local water supplies.

 

Fire Tap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This is a picture from a resident of Dimrock, Pennsylvania, who was able to light his tap on fire due to hydraulic fracturing that occurs nearby.

In last week’s post we discussed the process by which Hydraulic Fracturing occurs. As a follow up article, this week we will be exploring the environmental concerns regarding the “fracking” process and its impacts on water tables, water supplies & waste water management.

The Diagram below depicts the systemic process of how local water tables, which supply drinking water for local residents, can become contaminated due to the Fracking process. This diagram attempts to prove, that although the fracking takes places 7,000-10,000 feet below most water tables, the fractures created will spread thousands and thousands of feet upward to contaminate the water supply. Using logic, one must assume that this is a highly unlikely possibility, but non the less a possibility. The four most common/likely ways the water can become contaminated are as follows

 

Drilling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1)     Derrick -The natural gas process involves drilling 5,000 feet or more down and a comparable distance horizontally. The majority of the drilling liquid remains in the ground and is not biodegradable.

2)     Well Castings - If the well casing that penetrates through the aquifer is not well sealed, chemicals can leak in to the aquifer.

3)     Fractured Shale – To release the gas from underground, millions of gallons of water, sand and proprietary chemicals are injected, under high pressure, into the well. The pressure fractures the shale and props open fissures that enable natural gas to flow more freely out of the well. These fissures may allow the chemicals to enter the water system. In addition, recent reports suggest that radiation in the ground is contaminating the fracking fluid. This radiation has been showing up in drinking water.

4)     Surface Contamination - The gas comes up wet in produced water and has to be separated from the wastewater on the surface. Only 30-50% of the water is typically recovered from a well. This wastewater can be highly toxic. Holding ponds, and handling mishaps can release this toxic brew into the environment. For some examples, see the video below about residents in Pennsylvania and the impact of fracking on their water systems. Surface evaporation of VOCs coming into contact with diesel exhaust from trucks and generators at the well site, can produce ground level ozone. Ozone plumes can travel up to 250 miles.

  

Another diagram skewed to show how fractures can seep into local water aquifers. An interactive version is available at GasLandTheMovie.com.

 

 Frack Leaks

















Government Oversight?

In 2005, the Bush/ Cheney Energy Bill exempted natural gas drilling from the Safe Drinking Water Act. It exempts companies from disclosing the chemicals used during hydraulic fracturing. Essentially, the provision took the Environmental Protection Agency (EPA) off the job. It is now commonly referred to as the Halliburton Loophole.

The FRAC Act (Fracturing Responsibility and Awareness to Chemical Act) is a House bill intended to repeal the Halliburton Loophole and to require the natural gas industry to disclose the chemicals they use.

During the last Congress, the Committee launched an investigation into the practice of hydraulic fracturing in the United States, asking the leading oil and gas service companies to disclose information on the products used in this process between 2005 and 2009.

The Democratic Committee staff analyzed the data provided by the companies about their practices, finding that:

  • The 14 leading oil and gas service companies used more than 780 million gallons of hydraulic fracturing products, not including water added at the well site. Overall, the companies used more than 2,500 hydraulic fracturing products containing 750 different chemicals and other components.
  • The components used in the hydraulic fracturing products ranged from generally harmless and common substances, such as salt and citric acid, to extremely toxic substances, such as benzene and lead. Some companies even used instant coffee and walnut hulls in their fracturing fluids.
  • Between 2005 and 2009, the oil and gas service companies used hydraulic fracturing products containing 29 chemicals that are known or possible human carcinogens, regulated under the Safe Drinking Water Act (SDWA) for their risks to human health, or listed as hazardous air pollutants under the Clean Air Act.
  • The BTEX compounds – benzene, toluene, xylene, and ethylbenzene – are SDWA contaminants and hazardous air pollutants. Benzene also is a known human carcinogen. The hydraulic fracturing companies injected 11.4 million gallons of products containing at least one BTEX chemical over the five-year period.
  • Methanol, which was used in 342 hydraulic fracturing products, was the most widely used chemical between 2005 and 2009. The substance is a hazardous air pollutant and is on the candidate list for potential regulation under SDWA. Isopropyl alcohol, 2-butoxyethanol, and ethylene glycol were the other most widely used chemicals.
  • Many of the hydraulic fracturing fluids contain chemical components that are listed as “proprietary” or “trade secret.” The companies used 94 million gallons of 279 products that contained at least one chemical or component that the manufacturers deemed proprietary or a trade secret. In many instances, the oil and gas service companies were unable to identify these “proprietary” chemicals, suggesting that the companies are injecting fluids containing chemicals that they themselves cannot identify.

 

Waste Water Management?

Currently the majority of the thousands, if not millions, of gallons of waste water are pumped back in the wells. These chemicals and VOC’s (volatile organic compounds (VOCs) such as benzene, toluene, ethylbenzene and xylene) are not biodegradable. Currently the Western U.S is experiencing a drought and one can reasonable assume that given the amount of water used in the fracking process, recovering as much water as possible is quite necessary.

 

Resources

1)      Gas Tap – Gaslandthemovie.com

2)      “how natural gas drilling contaminates drinking water sources” -http://www.greenpeace.org/usa/en/campaigns/global-warming-and-energy/The-Problem/fracking/Fracking-Diagram/

3)      http://8020vision.com/2011/04/17/congress-releases-report-on-toxic-chemicals-used-in-fracking/ - Congress Releases Report on Toxic Chemicals Used In Frackingby Jay Kimball on 17 April 2011

Hydraulic Fracturing

Oct 3, 2012

What is Fracking?

Hydraulic fracturing has been in existence since 1947[i] where high pressure fluid is pumped into a well along certain veins to release petroleum and other hydrocarbons from the source rocks. The more modern technique of horizontal or “slickwater” fracking was first introduced in 1998[ii] in the Barnett Shale deposits in Texas. This horizontal method became much more economical and allowed for the new mining technique to be more widely used.

The purpose of hydraulic fracturing is to release natural gas trapped in shale formations. Shale is a fine grained sedimentary rock that is composed of a mix of clay minerals and is formed when riverbeds are exposed to high pressure compaction over millions of years[iii].

 

How is it Fracking done?

Simplified Steps In Hydraulic Fracturing[iv]

1. Water, sand and additives​ are pumped at high pressures down the wellbore.

2. The liquid goes through perforated sections of the wellbore and into the surrounding formation, fracturing the rock and injecting sand or proppants into the cracks to hold them open.

3. Experts continually monitor and gauge pressures, fluids and proppants, studying how the sand reacts when it hits the bottom of the wellbore, slowly increasing the density of sand to water as the fracturing progresses.

4. This process may be repeated multiple times in “stages” to reach maximum areas of the wellbore. When this is done, the wellbore is temporarily plugged between each stage to maintain the highest water pressure possible and get maximum fracturing results in the rock.

5. The fracturing plugs are drilled or removed from the wellbore and the well is tested for results.

6. The water pressure is reduced and fluids are carried up the wellbore for disposal or treatment and re-use. 

 

How does Shale gas affect the energy outlook and market?

Shale gas plays a very important role in the energy market in the United States and Canada. The shale deposits in the US accounted for 1% of all US natural gas production in 2000 but by 2010, that number rose to 20%[v]. The Energy Information Administration in the US predicts that natural gas from shale deposits will account for 46% of the natural gas supply.

A study by the Baker Institute of Public Policy at Rice University concluded that increased shale gas production in the US and Canada could help prevent Russia and Persian Gulf countries from dictating higher prices for the gas they export to European countries[vi]

 

How will Shale Gas affect the Canadian Market?

We have seen a clear play by the major utilities in Canada to build a pipeline to connect southern Ontario’s storage areas with the Marcellus shale region on the US east coast. This pipeline named, the Nexus, pipeline has seen investment by both Spectra Energy (Union Gas) and Enbridge Inc. The intention is for this pipeline to start in 2014 with completion estimated in 2015[vii].

There is much more news on the Nexus or NTE pipeline but we will save that for another blog. The important information to consider here is that both Union and Enbridge will be attempting to diversify their energy portfolio, thereby bringing more competitively priced gas to Ontario and ideally reducing costs for the consumers.

 

 

Picture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stay tuned for Hydraulic Fracturing part 2 where we look at the many environmental concerns of fracturing.

 

 


 

 

 

Inaugural Energy Blog

Sep 18, 2012

Clients, Visitors and Energy Knowledge Seekers,

We are foraying into the world of blogging. We hope to provide updates, for your reading, as often as possible, pertaining to all sectors and corresponding sub-sectors of the natural gas market. Our intent is to provide a one stop shop for all pertinent information regarding your natural gas service and the state of natural gas in Canada in general. We hope to deliver some new insights into how the market is rapidly changing, not only in Canada but in North America and the world. The new shale plays in the US combined with new projects and programs in the liquefied natural gas (LNG) markets provide for a very exciting time. As we see political pressure build toward reducing greenhouse gasses and eliminating coal fired power plants, we’re sure to have almost constant updates on the new natural gas landscape. In general, we take no ownership for the information we link to or include in our posts. The viewpoints expressed in all articles are those of the authors and we only include their work as a reference to the topic at hand or for added information regarding a particular topic.

 

As always we, at CESi, strive to provide value added services required in today’s complex energy market. Our team offers timely solutions to manage every natural gas portfolio, so that our clients always receive leading edge ideas and a proactive, rather than reactive, analysis of their energy requirements. We hope that our clients and future clients will find this information useful and demonstrate our personal guarantee to be on top of all developments in the natural gas market and, as always, to transfer our knowledge and experience to help increase our clients bottom line.

 

This weeks’ blog is focused on the recent BIG developments in the Transportation Sector of the Natural Gas Market. Last week 3 major energy companies announced the joint venture for the Nexus Gas Transmission Line. Spectra Energy Corp (based out of Houston), Enbridge Inc (Canada) and DTE (Detroit) have agreed to the roughly $1.5 Billion dollar pipeline venture to link eastern Ohio’s shale gas fields to customers in Ohio, Michigan and Ontario. Although the pipeline is still pending FERC’s (Federal Energy Regulatory Commision) approval, the 36 inch diameter pipeline would run through existing power line corridors which would yield a minimal impact on the environment and neighboring communities. The Total capacity of the pipeline is expected to be able to transport 1 Billion Cubic Feet (Bcf) of Gas daily with an expected target date of completion of November 2015.

In the West, Spectra Energy Corp and BG Group PLC have proposed a MEGA-pipeline through British Columbia to export Liquified Natural gas to Asia/Pacific Markets. The 850 Kilometer Pipeline would yield a capacity of 4.2 Bcf/day which is more than what Ontario and Quebec use on a daily basis. This announcement comes after TransCanda Pipeline announced earlier this year its plans for their “Coastal Gaslink” Pipeline which would transport gas from Alberta to Kitimat, BC. TCPL’s pipeline is expected to have a capacity of 1.7 Bcf/day to be turned into LNG for export to countries such as Japan, China and South Korea with added potential for India and Thailand. As these pipelines are in early stages the expected operational start date would not be till 2019.

 

Implications:

Over the recent years the U.S has found an abundance of Natural Gas through the, sometimes controversial, method of Fracking. Their reliance on imported Natural gas from Canada has declined significantly and is expected to drop another 2 Bcf/day over the next 5 years from the current level of 6.9 Bcf/day. This means as the TransCanada Pipeline (TCPL) Main line, which flows gas to the east, has been gaining a significant amount of excess capacity. Currently producers feel the toll charges are too expensive, recently transportation cost were more than the actual physical gas, TCPL is feeling pressure to reduce its toll charges in order to stay competitive in the North American Market. For Canada as a country, with declining exports to our main trading partner the U.S, we must seek other viable countries to export our oil and Natural Gas too!

 

Sources:

1. New $1.5 billion natural gas pipeline proposed for northern Ohio

Published: Tuesday, September 04, 2012, 7:08 PM Updated: Tuesday, September 04, 2012, 11:27 PM

By John Funk, The Plain DealerThe Plain Dealer

 

2.Conceptual Route of Proposed Spectra Energy and BG Group new natural gas transportation system from Northeast British Columbia to Prince Rupert, on British Columbia's northwest coast.

Spectra, BG make big pipeline bet in the race to B.C.’s coast

BRENT JANG AND NATHAN VANDERKLIPPE

VANCOUVER AND CALGARY — The Globe and Mail

Published Monday, Sep. 10 2012, 10:40 AM EDT

Natural Gas Pricing Update

Jan 25, 2012

Chesapeake Energy, formed in 1989, is the second largest producer of natural gas and is a top 15 producer of oil and natural gas liquids. Operating out of Oklahoma City, their operations are focused on developing unconventional natural gas and oilfields onshore in the United States.

 

Their recent article found here:http://www.chk.com/news/articles/pages/1651252.aspx, discusses their need to cut back on operations to meet the current fluctuations of the natural gas market.