A gaseous affair

I don’t know if you have been following the natural gas issue in New Brunswick but it is approaching the level of bizarro world.   The CEO of Flakeboard writes and op/ed stating he pays 10 times the gas distribution costs as his competitors pay in other markets in North America.  In an article in the TJ, a US natural gas expert is quoted as saying the system is rapidly going under.  Now Enbridge is fighting back.  Here are some of the comments in an Enbridge letter to the editor with my comments below:

Enbridge Gas New Brunswick offers reliable, clean and economic natural gas to its customers and is committed to continuing to provide energy that is less expensive than what typical customers would otherwise pay for oil and electricity in New Brunswick.

That’s false.  Enbridge does offer gas at rates below oil and electricity but only because it has been able to bank $132 million in cumulative losses (to be made up after the development period).  The true statement is that Enbridge has provided energy that is more expensive but at some fuzzy time in the future, that will be rectified.

The development of the natural gas distribution system has required significant investment in the province. Enbridge Gas New Brunswick has invested more than $380 million in the province during the past decade. With this investment has come over 130 direct jobs within Enbridge Gas New Brunswick and more than 400 additional jobs within the industry.
 

 

It is questionable whether this is ‘economic development’ in any definition of the term.  The average New Brunswick household pays something in the realm of $2,500/year to heat their home.  Shifting from one source of energy – at least on paper – doesn’t do much for economic development.  It is just moving from one energy source to another.  It is true that Enbridge has invested $380 million but that just means less investment from other energy suppliers.  Enbridge coming to NB did nothing to increase the overall economic activity in the province.   In economic development modelling there is some benefit from efficiencies.  For example, if the average household pays 10% less for energy, they can spend that money elsewhere in the local economy.  However, with Enbridge building up a $132 million loss to be taken back from consumers in the future, this too is a doubtful claim.

Bringing natural gas to New Brunswick has been a positive development for our province’s economy. Today, New Brunswickers who choose to use natural gas pay less for energy than they would if they were using electricity or oil. Enbridge Gas New Brunswick is committed to delivering clean and economic natural gas to its customers and to delivering a model that works in the best long-term interests of the province.

Again, they pay slightly less because it will be made up by customers in the future.  If NB Power was allowed to charge 20% less and then bank those losses to be made up in the future, I would bet they would take the deal.  

I think, looking back now, that you could have easily made the case that natural gas should have been piped into a few industrial parks and rolled out to residences as it became economically viable.  If the government wanted to incentivize people to get off baseboard electrical heating, they could have used a variety of other incentive tools that would have been cheaper and more effective (wood pellets, energy efficiency, solar, etc.).  The $137 million deficit racked up by Enbridge represents $17,000 per customer.  For that cost, the government could have paid for the entire solar power system for each household.

As for the best long term interests of the province – that’s why I am so frustrated.   Read my column here to see why.

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3 Responses to A gaseous affair

  1. mikel says:

    That was top notch reporting, hopefully you got paid more than an op/ed stipend. That’s the kind of business reporting we expect from Irving and CBC but rarely get it (more often from CBC but still fairly rare).
    Not much to comment on, except maybe to ask somebody else (David has done enough work on it) what specifically the Nova Scotia model is (was).
    As for economic development, the big bonus of natural gas is simply that gas right now is dirt cheap, cheaper than oil. And oil seems to have its own problems, I seem to recall something about high home heating oil prices as well.
    My parents pay a flat rate of about $2000 per year for hydro. That’s WITHOUT air conditioning. We pay about half that for a home similar size (unlike most ontarians we don’t use our air conditioning though).
    For home heating I think the biggest crime is the rural cost of heating oil. Being surrounded by wood, IF that wood were available for home heating and a program set up for high efficiency wood stoves, the cumulative effect would be better than the current practise of shipping it out.

  2. Rob says:

    Gas is dirt cheap everywhere EXCEPT New Brunswick. The Henry Hub spot price of NG is about $3.25/MMBTU. The spot price of oil is about $70/bbl, or $12/MMBTU. It’s almost 4 times as cheap per unit energy to burn gas over oil right now. There is such a supply glut of natural gas today that North America is setting records for gas storage. However, that’s only the commodity charge.

    Enbridge plays w/ the distribution charge to peg NB’s natural gas prices to the price of electricity and the price of heating oil. They have a legislated monopoly, and should thus be making hand over fist. There’s something obviously wrong w/ their business model if they are not doing so.

    What we need is government aid to build natural gas lines. We did this w/ communications, and we’re doing it right now to get fibre optic lines directly into peoples homes. We ought to be doing the same with natural gas lines, giving people a cheaper and cleaner way to heat their homes.

    We also ought to be exploring ways to connect NB to the Canadian natural gas grid. We are isolated from the rest of the Canadian market, as the major pipelines end in Quebec. This would also help connect northern NB to natural gas.

  3. Paul says:

    The economics of natural gas in NB are complicated, YES. However, the bottom line is that all customers on natural gas are paying cheaper for their energy than what they were on before the conversion to natural gas. Yes large losses have been accumulated, however the majority of the $132 million was generated/accumulated in the first 5 years, when Enbridge had less than 2500 customers. Now there are 10,000 customers, the total losses are stable. When the development period ends, the distribution rates will no longer be pegged to oil and electricity. There will be sufficient customers then to allow for even greater savings over oil and gas than the 10-20% target that is currently promised. These are the fACTS in NB, the first post is not completely accurate.

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