Most of what will drive up the cost of home energy this winter is the rising price of natural gas, which generates 8.5 per cent of Canada’s electricity.
Right now, MacDonald said, natural gas prices are being driven upward by a combination of geopolitical strife in Europe, the global transition to renewable energy, seasonal demand, the federal carbon tax and the cyclical fluctuation of gas prices over roughly 20-year periods as supply and demand try to meet and overcorrect.
Some of these factors are predictable. Some, like the war in Ukraine, are not. The war reduced the global supply of natural gas, generally driving prices up. It has also reduced Europe’s access to the resource. As a result, the U.S. has increased its natural gas exports to Europe, and Canada has increased its exports to the U.S., further reducing Canada’s supply. Natural gas is currently five times more expensive in Europe than in Canada, MacDonald said, but as our supply drops, that will change.
“We’re sending more and we’re going to start to see the Canadian marketplace and the price of natural gas in Canada trend closer to the global price than it has done historically,” he said.
Further driving Europe’s demand for natural gas is a gap in its energy supply generated by the continent’s transition to renewable energy. It’s in a phase, MacDonald said, where neither its slowing fossil-fuel sector nor its burgeoning renewable sector can meet its energy needs.
So international demand for natural gas is rising. As the days become shorter and colder heading into the winter months, domestic demand is rising, too. Heftier energy bills are something Canadians expect each winter, but some years are costlier than others. This winter is shaping up to be a costly one, explains Michelle Leslie, senior manager of infrastructure and capital projects at Deloitte Canada.
“Forecasts indicate it’s going to be cold and snowy, especially for the central parts of the country and in the maritime provinces,” Leslie told CTVNews.ca in a phone interview on Friday. “If the forecast pans out…that will drive demand on heating systems. When you look at supply and demand, as the demand goes up, depending on what your supplies look like, you could be looking at increased prices.”
Then there’s the federal carbon tax, which applies to both natural gas and electricity generated using combustible fuel. Putting a price on carbon pollution is widely recognized as the most efficient method to reduce greenhouse gas emissions and drive innovation, but it can translate to heftier home heating and electrical bills.
Finally, MacDonald explained, natural gas prices tend to rise and fall over years-long cycles as the market overcorrects gaps between supply and demand. For example, the cost of natural gas in Alberta this July was $5.44 per gigajoule (GJ). In mid-2008, it peaked at $9.84 before falling again. In late 2005 and early 2001 it temporarily surpassed $11.
“Natural gas from 2000 to 2010 regularly traded around $6 per GJ,” MacDonald said. “Then we had a period of extreme lows from 2015 to 2020, and we’ve been seeing over the last year a return to the $6-per-gigajoule mark.”
All of these factors – domestic, international, predictable and unpredictable – spell increasing energy costs.
How much and how quickly residents’ home energy bills reflect these increases will depend on which province or territory they live in. This is because marketplace mechanisms within some provinces and territories act to mitigate or delay increases. Provincial energy retail marketplaces are either regulated or unregulated. Unregulated marketplaces tend to be more volatile, while price changes in regulated retail marketplaces tend to be more controlled.
“Everyone’s prices will be going up with time,” MacDonald said. “I think one of the biggest regional differences right now is the speed at which they are going up, and the regulated marketplaces are a little slower than the unregulated.”
Ontario’s marketplace is technically deregulated, but most consumers purchase from entities whose rates are regulated by the province, like Enbridge Gas and EPCOR Natural Gas Limited Partnership. The Ontario Energy Board announced in June it would allow Enbridge to increase natural gas prices by 20 per cent, but MacDonald said that increase actually reflects debt Enbridge was asked to absorb when the market price of natural gas rose during the pandemic, to avoid passing the increase to consumers at a time when many people were unable to work.
“Ontario asked Enbridge to take on $527 million in debt to cover the increases, so up until recently, the bills weren’t increasing,” he explained. “But now they have to start to recapture (that) debt.”
Regional nuances aside, MacDonald and Leslie both agree that Canadians aren’t likely to see home energy prices fall again soon.
“As of right now, there’s not a lot of reason to think prices will be going down in the next two to three years,” MacDonald said.
Leslie elaborated, adding that all signs point to domestic and global demand for natural gas continuing to rise for the foreseeable future, driving up prices if supply can’t keep up.
“With the forecast that’s in the cards for Canada and North America this winter, with everything that’s going on with Russia and Ukraine and Europe’s energy woes, I don’t expect the demand for natural gas to decrease,” she said. “In fact I expect it to increase.”