Global Energy Crisis | Hydro reaps, consumers pay

The increase in energy prices due to the war in Ukraine has triggered a serious crisis in Europe, and this crisis has repercussions as far away as Quebec. Hydro-Québec will reap the profits from its exports, but many Quebecers will pay more for heating in the winter.

Helene Baril
The Press

For years, surplus electricity from Quebec was exported at a very low price to the American market. The situation is changing and for the coming winter, electricity exports will probably be the most profitable in the history of Hydro-Québec.

The price of natural gas in northeastern North America, which determines the price of electricity on Hydro-Québec’s export markets, has doubled since the start of 2022. Between January and June, ie during the first half of the year, the exported kilowatts were sold more expensive and brought in profits up 45% compared to the same period of the previous year.

Even though electricity needs are significant in Québec during the winter months, Hydro-Québec manages, year after year, to export between 8 and 9 terawatt hours per year to neighboring markets during the cold season. In an entire year, exports reach some 35 terawatt hours, or 17% of total electricity sales.

The price of natural gas should remain high for several more months, estimate the specialists interviewed by The Press.

Global demand, which continues to rise, will support the price of gas everywhere in the world, including in North America, which has benefited since the gas boom from an abundant and inexpensive resource. In liquid form, natural gas travels more and more, which makes its price international.

Since the start of the European crisis, the United States has increased its exports of liquid natural gas (LNG), to the point of becoming the world’s largest exporter of LNG, ahead of Qatar and Australia.

The opening of the world market allows natural gas producers to take advantage of higher prices in Europe and Japan, but its price also increases on the North American market.

“Natural gas at $2 [US par MBTU]it’s over,” said Professor Sylvain Audette, professor at HEC Montréal and associated with the Chair in Energy Sector Management.

A temporary windfall

The big winners in this new energy environment are North American gas producers. “Several of them had reduced their production and even ceased their activities because the prices were too low,” recalls Professor Audette. The high prices put them back to work.

Hydro-Quebec, for its part, benefits indirectly from this windfall, by selling its kilowatts at a higher price on the New York and New England markets.

The Quebec state corporation has always benefited from gas price hikes, in summer during heat waves or in winter when extreme cold rages in the northeast of the continent. But these price peaks were most of the time very short-lived, while prices seem to want to stay at the current high level for a while, according to Sylvain Audette.

As the water level in the reservoirs is adequate and prices on the American market are expected to remain high over the coming months, exports will continue to be very profitable, indicated last month Jean-Hugues Lafleur, vice-president Executive and Chief Financial Officer of Hydro-Québec, during the publication of the results for the second quarter.

Simon Langlois, of the Trottier Energy Institute at Polytechnique Montréal, points out that this grace period enjoyed by Hydro-Québec will not last forever. “With the large-volume contracts with New York and Massachusetts, which are fixed-price contracts, Hydro-Québec will have less energy to export to the spot market and fewer opportunities to profit from it if prices remain high, he says. In the meantime, yes, it plays to their advantage. »

The supply contract signed by Hydro-Québec with Massachusetts should come into effect in 2024 for a period of 20 years. The one signed with New York provides for deliveries from 2025 for a period of 25 years.

More expensive for everyone

Heating will cost more in Quebec, but not only for reasons related to the international context. Overview.

Natural gas: + 7.8%

After accepting a historic 15.6% increase in their rates last year, Quebec natural gas consumers are facing another major increase of at least 7.8% this fall.

Énergir’s request for a rate increase currently being examined by the Régie de l’énergie concerns only the company’s transmission and distribution services, to which will be added an increase in the cost of natural gas, which will vary according to consumption. The price of natural gas for Énergir and its customers is up 40% since last year.

Some 100,000 Quebec households use natural gas for heating.

Heating oil: + 18%

Residential oil consumers are becoming increasingly rare in Quebec, but those who still use this source of energy will have to pay more for heating this winter. The rise in the price of crude oil has brought with it derivative products such as fuel oil. The average price of a liter of fuel oil, which was $1.40 in Quebec last winter, is currently at $1.65, according to the Régie de l’énergie.

Electricity: +2.6%

Electricity rates increased by 2.6% last April. It is therefore from winter on that they will have a full impact on the heating bill of Quebecers, most of whom use electricity for heating.

Another increase in electricity tariffs is announced for the 1^er next April, which should be 3%. The increase in electricity tariffs, which was to follow inflation, had to be limited to 3% by the government due to an inflation rate much higher than forecast.