Canada Energy Market Report - May 2017

Electricity Hedging Strategy: I hope everyone enjoyed their brief holiday from high Ontario electricity prices as prices are back over $0.10/kWh. It seems that IESO (the agency in charge of figuring out how much Global Adjustment to charge) significantly under-forecasted the amount of GA that was needed in April and made up for it in May. Interestingly, while the average hourly price in April was $0.011/kWh, the hourly price for May was an all-time low of just $0.0032/kWh - just three tenths of a cent per kWh. For clients that have the majority of their energy use during the summer it may be worth taking a look at a summer hedge for July and August.

Natural Gas Hedging Strategy: Last month we discussed how the gas futures market is currently in backwardation - the future price of gas is cheaper than the price for 2017. This situation is narrowing quickly, and it may be a matter of weeks before the situation is reversed and we are back to normal conditions. This is particularly evident at the start of the future curve - 2018 is narrowing much faster than 2019, while 2020 remains untouched so far. There is still some value to be unlocked right now on 2 - 3 year gas terms, so we recommend considering locking in a portion of your requirements before summer starts in earnest.

In the near term, prices have been increasing as a result of hot weather forecasts, which are bullish for gas as many power markets across North America are increasingly supplied by gas-fired generation. In export news, LNG export projects on the west coast have been cast into uncertainty with the provincial government election results. The Green party, who find themselves holding the balance of power between the Liberals and the NDP are ideologically opposed to LNG projects. Despite this, an investment consortium is forging ahead with developing the Kitimat project, so it is still possible that Canada could be an LNG exporter within the next decade.

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