Canadians feel the cold in their wallets

www.globeandmail.com By PATRICK BRETHOUR AND LILY NGUYEN With files from Reuters

Saturday, January 25, 2003 – Page B1

CALGARY -- Canadians, already suffering through a brutal cold snap, are facing a year of soaring heating bills and costly fill-ups, with prices for oil and natural gas expected to linger at lofty levels.

Cold weather, geopolitical instability and tight inventories have pushed energy prices up sharply in the past two months. And a U.S. attack on Iraq would push oil prices much higher -- to levels not seen since the original Persian Gulf war, threatening to eat into consumer spending and throw the global economy into recession.

Already, rising energy costs are starting to pinch Canadians' wallets. The national average cost for gasoline has risen substantially and now hefty heating bills are starting to arrive.

Opening his latest heating bill, Mark Topolnyski got his own personal energy price shock. Cold weather and higher prices for natural gas sent his monthly tab soaring to $250, a two-thirds increase. "The furnace runs half the night," said Mr. Topolnyski, who lives west of Calgary in Bragg Creek, Alta.

He, and many other Canadians, can expect even higher bills later in the winter.

The cold snap clutching much of North America has driven up the price of natural gas on commodity markets this month, but that increase hasn't made its way into retail prices yet. It soon will, says the Consumers Association of Canada.

"The cold snap in North America will put significant upward pressure on prices of fuel oil and natural gas," said Peter Dyne, chairman of the association's energy network.

Heating oil prices are already on the rise with the per-litre cost increasing 9 per cent in Ottawa in January, according to M.J. Ervin & Associates Inc., which tracks retail prices for oil products across Canada.

In Ontario, electricity demand is soaring, spurred in part by the use of space heaters, according to the Independent Market Operator, which administers the province's wholesale market. On Wednesday, demand in the province hit an all-time high for the winter season.

Prices in the wholesale market are rising too, touching 15.27 cents a kilowatt-hour on Thursday. Ontario consumers and other low-volume users are shielded from the spike because of the price cap the province put in place last year. The province is ultimately responsible for the difference between the capped price of 4.3 cents a kilowatt-hour and higher wholesale rates, although there are some funds available to offset deficits. Also, times of low prices such as in early January help to cushion the impact of high-price periods.

In Alberta, where natural gas is the main source of home heating, prices are rising -- and so is demand for a rebate to ease the pain of higher bills. In the winter of 2000-01, the provincial government spent more than $3.8-billion on energy rebates for consumers and businesses, including $1.1-billion to offset soaring natural gas prices.

Alberta Liberal Leader Ken Nicol is pushing the Tories to issue a new round of rebate cheques immediately. "It's doing what the law says we have to do," he said, referring to provincial legislation that promises payouts to residents in times of high natural gas prices.

The government declined to comment on the rebate debate this week.

In the past, the Tories have contended that any refund should be based on the average price of natural gas over an entire fiscal year. That rationale did not hold sway in the election year of 2001, however, when Premier Ralph Klein announced a series of refunds, starting in October, 2000.

Prices are high enough to push the U.S. government into announcing yesterday an additional $200-million (U.S.) in emergency aid to help poor Americans pay winter heating bills.

Natural gas prices, already soaring because of tight supplies this winter, have been pushed further skyward by the recent deep freeze across much of North America -- and in New York City, home to the traders on the main gas futures exchange. "When New York City sees cold or snow, the gas futures go up," said Wilf Gobert, a Peters & Co. analyst in Calgary.

The U.S. benchmark for March closed yesterday at $5.46 (U.S.) per million British thermal units, up 15 per cent so far this month.

At Atco Gas, Alberta's dominant gas distributor, the price of gas has already soared to $7.022 (Canadian) a gigajoule this month, from $3.537 last January for northern customers. A similar increase was seen for southern customers.

Atco Gas vice-president Jim Beckett explained that the utility buys most of its gas on the spot market and merely passes it through to customers -- which means every price spike will eventually show up on the gas bill. "If there's a blip in the wholesale price, customers will see that," he said.

At BC Gas Inc., spokesman Dean Pelkey explained that the utility hedges most of its gas supply and tries to average out the year's gas costs, so that customers are insulated from short-term spikes.

On the other hand, if a series of spikes turns into a longer-term trend toward higher gas, customers are going to feel it, he said.

Martin Molyneaux, research director at FirstEnergy Capital Corp. in Calgary, said Wall Street analysts have been ratcheting up their predictions for 2003's average gas price by about 20 per cent in recent weeks, to $4 (U.S.) from $3.40.

Crude oil prices, too, are soaring.

Oil prices touched $35 a barrel this week, their highest level in more than two years, and are holding steady around $33 a barrel, rising $1.03 to $33.28 yesterday.

The protracted and crippling strike in Venezuela, along with the frosty weather in North America, is responsible for much of the rise in oil prices since early December.

The recent strength of oil prices prompted the Canadian Energy Research Institute to boost its estimate for the full-year average cost of oil to $26.50 a barrel. But Vincent Lauerman, CERI's global energy analyst, said that figure could soar to $33 a barrel -- and spike to $50 a barrel -- if the United States attacks Iraq.

Such a scenario would leave oil prices, adjusted for inflation, at an 18-year high, with crude more costly than even at the time of the first Persian Gulf war.