It’s going to cost a lot more to heat your home this winter – and it didn’t have to be that way
When you open your January home heating bill and catch the smelly salts, don’t blame the Alberta natural gas producers who supply central Canada.
Put simply, there is not enough natural gas in the world to meet the surge in demand due to the unprecedented rebound in the global economy and to keep our homes warm this winter.
No, we are not short of natural gas.
Global natural gas prices are climbing to near record highs, in large part due to preventable miscalculations.
These include the geopolitical approach of Vladimir Putin. And the failure of major economies to store enough natural gas to meet growing demand in a post-pandemic economic boom. More on that later.
Natural gas consumers in the GTA can expect price increases of 16-19% this winter.
Painful as it is, this is a modest increase from jurisdictions that are not self-sufficient in Canada’s gas. Canada is also less dependent than others on gas for electricity production, with hydroelectricity and nuclear power accounting for a significant portion of the electricity mix.
But US natural gas prices jumped about 66% last month. This will trickle down to Canadians in the form of higher prices for imported US products.
The same goes for imports from Europe and Asia, where natural gas prices have more than tripled this year.
Given China’s outsized role as a supplier of goods to Canada, disruptions caused by shortages of natural gas in China are likely to push up the prices of Canadian consumer goods.
China is already closing factories and diverting electricity from industrial uses to residential heating and other non-industrial uses.
With just a touch of alarmism, some experts in global energy trends are warning that the surge in energy prices around the world is a foretaste of similar or worse energy crises that we will experience over the next two decades so that we “switch” to clean energy.
At least this time the conditions in Canada are not so bad.
Economists and government policy makers in Canada remain convinced that above-average inflation today is “transient.” That, for example, the doubling of pump prices in the GTA over the past year is a short-term difficulty and that prices will return to pre-pandemic levels by next summer.
Coming out of the COVID-19 pandemic, pent-up demand was unleashed, predictably pushing up prices for everything. It will take about two years to eliminate this unusually high demand from the system.
That said, these mildly alarmist experts are on to something.
It will not be easy to match the phasing out of fossil fuels with the rise of clean energy sources in something approaching perfect synchronicity.
Energy is a massive and complex infrastructure of traditional and emerging technologies, government, nonprofit and private actors, countries with disparate agendas and often competing goals of improving environmental protection and profit maximization.
Problems will arise, for example, with each failure to coordinate the reduced cycles of oil refineries with the increase in energy from wind, solar and other alternative energy sources.
It won’t surprise you that there is no overall master plan for transparent execution on this megaproject of megaprojects.
This would seem an obvious priority for world leaders at the upcoming Glasgow climate crisis summit which begins this month.
This is however not the case. The summit will be considered a success if the leaders do not renounce their commitments to reduce the growth of greenhouse gas emissions.
But if we mismanage future energy crises the same way we botched this one, future episodes of disruption could well occur.
Obviously, we cannot afford it.
Energy inflation in Canada, at a staggering 20.7% in August, according to the Organization for Economic Co-operation and Development (OECD), is the second highest rate in the G7.
The rate of the OECD, the so-called club of rich countries of which Canada is a member, is almost as high, at 18%.
If you exclude energy and food inflation from the Consumer Price Index, Canada’s headline inflation rate would drop from its high of 4.1% in 18 years to a more acceptable level of 2 , 8%.
Food inflation in Canada is likely to be around five percent, which is higher than StatsCan reports which do not take into account some price entries.
Food inflation is strongly linked to energy due to the heavy reliance of the food supply system on transportation, the costs of which are skyrocketing with rising energy prices.
The worrying state of the global natural gas market is raising concerns about incompetence in managing the transition to clean energy.
Understanding that the alarming dysfunction of today’s natural gas market is work for Franz Kafka.
But let’s try.
For starters, Russian President Vladimir Putin is dragging his feet on increasing Russian natural gas exports to a Europe threatened with crippling gas shortages.
By keeping the gas at home, Putin is guarding against domestic shortages that could cause civil unrest.
But Putin has also long used natural gas exports as a geopolitical lever in Europe, reminding him of Russia’s status as a great power. He’s doing it now. With every day that passes without Putin increasing supplies to Europe, commodity traders are pushing up global natural gas prices.
For Bloomberg energy analyst John Authers, “this crisis concerns Russia.” He underlines the slavish attention commodity traders pay to every word of the Russian leader, setting world prices accordingly.
When Putin simply hinted this week that Russia might ease the tight supply with increased gas production, world prices fell. But only briefly, since Putin was not specific on his next move.
Meanwhile, it may not have been the ideal year for Germany to start dismantling the last of its nuclear power plants. The world’s fourth-largest economy depends more than ever on natural gas for its energy.
Several Asian economies have accumulated gas. By withdrawing it from the world market, they have helped to reduce the supply and increase the prices of natural gas.
China, the world’s largest buyer of natural gas, is increasing its gas imports, putting upward pressure on the world price.
China needs to increase its gas-fired power generation to replace thermal coal it stopped buying from Australia last year. This crisis of spite was meant to punish Canberra for its recklessness by calling for a global investigation into the origins of COVID-19.
And Europe, China and Brazil, among other major economies, this year failed to maintain sufficient stocks of natural gas to fuel the expected post-pandemic economic recoveries.
Even Canada’s natural gas storage levels are at their lowest in five years.
This is what the absence of a blueprint for coordinating a changing global energy mix looks like. May heaven help us.