Organizations that are aware of the status of their natural gas contracts, and that obtain advice to understand the market, can make more informed decisions which better meet their energy needs and also optimize their cost and profits from gas purchases and sales. To learn more about load-balancing, read our Load-Balancing Frequently Asked Questions.
In Ontario, the action called natural gas load-balancing* is traditionally addressed at very specific times of the year – February and September checkpoints for Union Gas customers and ahead of pool renewal for Enbridge customers.
Many organizations take the approach that their utility will tell them when they need to buy or sell more gas, and then either they’ll take care of it, or their supplier will take care of it for them. While this laidback, hands-off strategy might work in some years, it could create problems this year.
Why is 2016 Unique?
The warmer than normal winter we just had in Ontario means many customers will have a substantial amount of unused gas. According to Enbridge, direct purchase customers as a group have roughly seven times more ‘extra’ gas available within their system than there are potential buyers, creating an imbalance in the market. A similar imbalance can be seen within Union Gas’ franchise. This stands in stark contrast to the winters of 2014 and 2015; these two unexpectedly cold winters meant few customers had gas to sell, and the many that required more gas had to purchase it at prices inflated by the high demand. This year, many customers wanted to avoid buying in February; they certainly got their wish.
Be Proactive in Load Balancing and See Benefits
Despite the oversupply of gas this year, there are still opportunities to balance proactively which could prove beneficial to both sellers and buyers alike. Many organizations don’t track their gas positions regularly, and don’t even know if they are buyers or sellers until it’s too late – now is the time to find out, and consider your options to obtain the best outcome.
If you have extra gas you need to sell from your contract, the current over-supply gives you ample time to evaluate all options ahead of contract disposition and checkpoint; this creates the opportunity to take advantage of the high points in the Ontario market, obtaining the best price. Working proactively well in advance of the checkpoint will give a seller more control over when they sell, to whom, and at what price. As a seller, if you wait until the last minute, you will be forced to take whatever price is offered by the market, or perhaps by just your own supplier. Prices could decline sharply through September and October as other organizations, which may have also waited until the last minute, all have to dump their excess gas on a limited pool of buyers.
If you need to buy gas, there is the temptation to ride out the market and buy when all the sellers need to balance, taking advantage of price declines. For some customers, this may be a good strategy. It does present some risks for customers whose contracts are renewing on November 1 because these customers need to balance back to utility requirements by that date. For these buyers there is a chance that prices will increase due to weather, economic conditions that reduce the oversupply, or a high number of proactive sellers in the market. In a situation such as this summer, there is also the threat of sellers suspending their contracted gas purchases ahead of time to balance, cutting back on the supply. Price gains over the summer are uncommon but not impossible – over the past two months we have seen prices in Ontario rise from $2.60/GJ in mid-May to $3.40/GJ in the past week. Pro-active buying throughout the summer, even if in small portions, allows organizations to hedge their load-balancing position, leaving room to capitalize on declines without getting burnt by potential gains.
This summer is an excellent time to start balancing your natural gas position to achieve the best possible cost outcomes for your organization. Look now to see how you are tracking against your contracted purchase amounts, and seek advice to balance with your bottom line in mind.
Many organizations don’t really understand how to pro-actively load-balance their natural gas supply. If they are part of the Union Gas utility franchise, load-balancing is something they only need to do three times per year – at February checkpoint, September checkpoint, and possibly ahead of their contract renewal. Enbridge Gas customers might think about it even less, balancing only ahead of their contract renewal, and only if they are out of tolerance. This is the easiest way for most businesses to take care of their gas: only by thinking about it when they absolutely need to. Some organizations may not even get this far, allowing their energy marketer to take care of everything. At this point, everything is so easy that they don’t even need to know that load-balancing took place.
This might be the easy approach, but it’s also expensive. Natural gas pricing can change sharply in reaction to fluctuations in the U.S., Canadian or Ontario markets over the course of a day, let alone over the weeks and months between checkpoints and contract renewals. Sometimes utilities may have issues with natural gas storage or pipeline capacity, which can leave customers who have not been proactively balancing their supply high and dry. Knowing how much natural gas is needed well before checkpoint can allow organizations to capitalize on prices when they are low, and avoid last-minute balancing when prices typically increase.
Whether taking care of load-balancing by themselves or through consultants, organizations need to know what was is happening in the gas market on a month-to-month basis. But in addition to gas pricing, they also need to know how much they are using, and why. An organization which is increasing its production will likely have to buy a lot more gas at some set balancing deadlines than they previously expected. Understanding this early can help them budget their load-balancing transactions more carefully and accurately, preventing nasty surprises at the end of the month.
Whether businesses know it or not, load balancing can have a critical impact on energy costs. By taking a proactive approach, organizations can mitigate the impact of buying or selling natural gas when necessary, and can actually take advantage of the opportunity to better their organization’s bottom line.
*Load – Balancing: “The balancing of the gas supply to meet demand. Storage and other peak supply sources, curtailment of interruptible services, and diversions from one delivery point to another may be used by the Company.” Enbridge
