Someone sent me an email asking why I wasn’t blogging or writing columns on the current high natural gas prices for industrial users. I do mention the high cost of gas in my column today.
A few months ago I wrote a fairly scathing analysis of natural gas pricing in New Brunswick and the Alice in Wonderland world we live in where industrial customers pay as much for gas as residential users. The latest rate filing would see residential users that change from electricity to gas pay $8.85/GJ and large volume industrial users would pay $8.86/GJ. As far as I know there is no place in the world where industrial clients would pay more per GJ than residential users. But I am not a gas expert – someone else may be able to weigh in on this.
After my column, I was invited to meet with the Enbridge folks and they made some interesting points. The system that is set up today – was set up and is regulated by government. Enbridge is essentially just the contractor. Bernard Lord’s government determined that it wanted a wide ranging roll out of natural gas into places like Fredericton where there wasn’t a market-based reason to go and put in a system that allowed Enbridge to make a guaranteed return on their investment and acheive this wide roll out into uneconomic areas. The deferral account and the significant cross-subsidization of residential customers by industrial customers were two tools put in place by government to allow Enbridge to complete this wide roll out and make its guaranteed ROI.
After a false start, Nova Scotia went is an entirely different direction and now is rolling out natural gas on a straight economic model. New areas get gas infrastructure when there is a clear model that justifies the investment. You get much slower roll out but much better prices. That is why Halifax can offer natural gas at less than half the rate as New Brunswick.
I don’t want to be the one to point it out but the troubles with NB Power started just about the same time back in the early 2000s. And, I don’t want to be the one to point it out it was also around the time that any meaningful discussion about using NB’s local supply of natural gas for local economic development was squashed.
If it seems to you there is a kind of Jekyll and Hyde thing going on you are right. Some people wanted natural gas to be brought on with a full market based approach (including more competition at the retail end) and only roll out as the market dictated. Others wanted natural gas to be treated like electricity or telecom and be rolled out pervasively – in the south and the north – even if the public had to pay for the infrastructure (interestingly, it was decades before NB was fully electrified).
Some people wanted the government to look at the natural gas in Sussex and try to look at ways that the owner of the reserve could make its return on investment and at the same time the gas could be used for economic development (instead of shipping it to the U.S.). Others wanted it put in a pipe and shipped to the U.S. as quickly as possible.
I could make a similar argument with electricity. The language of the new energy legislation in New Brunswick under Bernie stripped out any reference to economic development.
My opinion on energy policy is that it must have an economic development dimension. Setting up a natural gas model so that industrial users pay three times as much (compared to other jurisdictions) so that residential users can be enticed to use natural gas doesn’t seem to fit the definition of an ‘economic development dimension’.
David Hay telling me in private (I can say it now that he is gone) that we should let Northern New Brunswick just decline and focus on the south – doesn’t seem to me like the former head of NB Power felt he had any type of economic development mandate.
And government officials refusing to even consider the possibility that Corridor Resources could make a profitable wellhead price for gas and it could simultaneously be used for economic development purposes doesn’t seem like an economic development dimension either. Although, ironically, the potash mine has an ownership stake in the natural gas out there and gets it at a real cheap price. Thinking about how we could extend this idea beyond the Potash corp. was ignored by government.
I agree, however; that it is a complex issue. When I talk about ‘economic development’ that implies government intervention and that can lead to weird outcomes like industrial users of gas paying more than residential users. There are people that say government should just completely stay out of energy altogether to avoid this politicization but I keep comign back to the same issue. Most of this is about monopolies or quasi-monopolies and you can’t – almost by definition – have a competitive market in a monopolistic situtation.
That means government is in whether we like it or not and it seems to me that means economic development should be in. I don’t care if residents in my neighbourhood have access to natural gas and I don’t want Enbridge building pipes to Fredericton if they aren’t warranted. I do want our industries – again based on some reasonable formula – to have access to competitive gas if possible.
We are living in an Alice in Wonderland world right now. Up is down and down is up. It’s happy unbirthday to us all.