Canada Energy Market Report – January 2018

Electricity Hedging Strategy: Alberta prices rocketed upwards to a 36-month high in January as cold weather caused record-high demand for power, (more than 10% over December) and the planned increase to the Alberta carbon levy kicked in. The rate is now $30/ton CO2e, up from $20/t in 2017. This increase has been priced in for some time now in the forward curves, with some 2018 contracts reaching as high as $0.07/kWh.

Ontario experienced very high hourly prices as a result of cold weather driving electricity demand. Two of the five system-wide peaks to date have occurred in January, which would be a first in Ontario if the peaks stay as is. The demand curve has been significantly depressed relative to the previous 12 months, primarily owing to curtailment from Class A Global Adjustment loads. Peaks are now occurring later and lower than they have been in the past, and the IESO forecast has been consistently bullish compared to actual due to the curtailment occurring (which is the intended effect of the Class A incentive).

Natural Gas Hedging Strategy: Natural gas goes nowhere in January, both literally and figuratively – with US shale gas taking a bigger market share in eastern Canada, little to no potential to export significant quantities, and a lack of available economic pipeline capacity, gas has been piling up in western storage. Forward prices for 2018, 2019, and 2020 have collapsed below $2.00, at $1.22, $1.47, and $1.61 respectively. Spring prices could be even uglier after the domestic heating demand in western Canada subsides and producers are faced with long-term prices at or below the cost of production.