Electricity Hedging Strategy: What a difference a year makes - this time last year the Alberta power market was on the brink of capitulation and today you would be forgiven for thinking a total recovery is underway. It’s important to note that the increase in prices have been almost entirely due to supply side factors. While demand for power was up slightly year over year, the carbon levy increase and the subsequent coal plant retirement in early 2018 was primarily responsible for the increase.
Long-term recovery in prices will be tied to broader economic recovery - of which oil plays a key factor. Alberta’s oil producers have one of the highest costs of production among major oil regions - typically around $70 per barrel. While oil prices have steadily increased and the economy has mostly recovered from the recession, it will take some time before this translates to economic demand for power.
Natural Gas Hedging Strategy: Another unremarkable month in the gas market - the price curve is starting pretty flat. The elephant in the room is the upcoming decision on whether or not the Shell-led consortium will give the green light to the proposed Kitimat LNG export plant. When up and running at full capacity (potentially around 2022), the plant could export 2 Bcf of LNG per day - which would represent a massive portion of our total production.
The market appears to be split on the probability, but a green light on the Final Investment Decision from the Shell consortium would have a significant impact on the futures curve. Balance of 2018 gas is currently at $1.28/GJ, 2019 is trading at $1.57/GJ, and 2020 and 2021 are at $1.60 and $1.87, respectively.