ENERGY SUMMIT 2018 Balancing a Healthy Bottom Line through Strategic Energy Management 05.30.2018
AGENDA 1. Who is ECNG Energy Group 2. Natural Gas Market 3. Cap & Trade 4. Ontario Power Market
WHO WE ARE
We are Canada’s largest and longest standing provider of energy management solutions for commercial, industrial and institutional markets. With more than 30 years in the industry, our holistic approach to end-to-end energy management delivers the highest value to our clients every day.
ECNG ENERGY GROUP ECNG is not a vendor, Retailer or Energy marketer. ECNG is your consultant for all energy matters ECNG Energy Group does not hold a financial interest in supply or transmission functions, meaning we do not take title to any commodity ECNG works for EMC members, not for energy suppliers, marketers or others
SERVICES Utility Bill Financial Management Services Service Strategic Our unique combination Custom Energy Reporting of services ensures we Procurement meet our clients’ every Energy Management need GA Cost Utility Reduction Intervention Audits & Grant & Rebate Assessments Programs
SERVICES Audits & GA Cost Assessments Reduction ECNG helps your business make smart and timely buying Strategic decisions for electricity, natural Grant & gas and other energy inputs to Energy Rebate manage price risks. Programs Procurement Utility Financial • ECNG Reviews Client goals, risk Intervention Services tolerance and time horizon • ECNG Establishes appropriate Utility Bill Custom procurement strategy Management Reporting Service • ECNG Executes on strategy
NATURAL GAS MARKETS
NATURAL GAS MARKETPLACE The current marketplace for end users who are looking for a healthy bottom line: o NYMEX gas prices are at steady levels while AECO commodity prices are very low. Good hedging opportunities for end users o High Dawn transportation prices in the near term (+ $1.60) o Attractive Dawn transportation prices in the longer term (2021 $1.20, 2022 $1.10) o Very expensive Empress transport pricing
PRICES – NYMEX NYMEX prompt prices are NYMEX Price History the main North American $16 proxy for prices. $14 Commodity Speculation Huge price volatility until the Hurricane Katrina & shale gas era. $12 Rita Global Shale Gas Growth $10 Recession & Cold In the last 7-8 years prices Commodity Weather & Polar Vortex Crash $CDN/GJ Pipeline strains basically between $2-$6 but $8 constraints supply more frequently $2.50-$4.00. network Warm Production $6 winter drives creates supply glut storage During high priced era (pre surplus $4 Storage Surplus 2007) LNG imports were and Strong Production contemplated. Now with low $2 prices LNG exports are in $0 their infancy. Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 NYMEX 10
PRICES – NYMEX vs. AECO AECO is the hub where 1 Year Term AECO Basis to NYMEX most Canadian companies $0.00 fix their commodity exposure. -$0.20 This graph shows the price -$0.40 difference (basis) between NYMEX prices and AECO -$0.60 prices. -$0.80 $CDN/GJ AECO basis usually trends -$1.00 in the $0.50-$1.00 range. -$1.20 Different drivers impacting -$1.40 Alberta gas prices than NYMEX prices. -$1.60 4-Jan-16 4-Mar-16 4-May-16 4-Jul-16 4-Sep-16 4-Nov-16 4-Jan-17 4-Mar-17 4-May-17 4-Jul-17 4-Sep-17 4-Nov-17 4-Jan-18 4-Mar-18 4-May-18 AECO Basis (Nov19 to Oct20) AECO Basis (Nov20 to Oct21) AECO Basis (Nov21 to Oct22) 11
SUPPLY Gradual , steady growth for U.S. Dry Gas Production supply for 10 years. (Bcf/day) 85 Production fell in 2016 and 78.86 80 early 2017 due to low drilling 74.14 73.56 75 for new supplies. 72.36 70.92 70 66.31 65.66 Production has increased 65 63.17 substantially in the last 9 Bcf/day 59.07 60 57.42 months however just under 55.41 55 half of that increase equates 52.36 50.70 to the regaining losses from 50 2016. 45 40 35 30 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 **Data Source: EIA 12
DEMAND – POWER GENERATION Consumption - Power Generation (Bcf/day) Power generation demand is growing. Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 21.34 19.79 17.98 18.30 20.87 23.96 27.09 28.86 25.63 22.64 19.90 20.26 Power generation volumes fluctuate a large amount due 2015 23.04 23.24 22.88 22.29 23.84 29.75 33.90 33.18 30.08 25.71 24.66 24.97 to weather and medium term environmental changes. 2016 24.87 23.67 24.00 24.10 26.05 32.38 36.83 37.26 30.50 23.91 22.22 23.37 2017 20.90 19.87 23.36 20.87 22.87 28.55 34.97 34.41 28.96 25.29 22.29 24.23 Power generation volumes are expected to grow. 2018 25.64 23.93 23.17 22.66 13
LIQUIFIED NATURAL GAS Real North American LNG export capacity only started Q1 2016. Very significant export capacity expected to come online in the next 2 years. Facility utilization rate will depend on North American netback pricing. Significant risk potential in 2019 and 2020 when capacity reaches 9+ Bcf/day. 2016 2017 2018 2019 0.5 B/day 1.9 B/day ? ? 14
AECO PRICES Fairly low NYMEX prices and record AECO basis represents an opportunity for end users. AECO discount to NYMEX: o Intra-Alberta pipeline maintenance to fix low pressure issues o Uncertainty around BC LNG export capabilities o Low gas pressure also limiting storage injections o Natural gas is temporarily getting trapped in Alberta
ACHIEVING A HEALTHY BOTTOM LINE Strategic, opportunistic purchases for commodity and transportation Consider purchasing separating - commodity and transportation AECO o Strong value in 2019 (Nov18 1 year) and 2020 (Nov18 1 year) DAWN o Attractive pricing in 2021 (Nov20 1 year) and 2022 o ECNG purchases at opportune times for EMC
CAP & TRADE
CAP & TRADE Mandatory aka Large Final Emitters LFEs o greater than 25,000 CO2 tonnes/year o greater than 1,300 GJ/d (MDV, DCQ) Voluntary (must “opt-in” or else…) o between 10,000 and 25,000 CO2 tonnes/year o Between 550 and 1,300 GJ/d (MDV, DCQ) Low Emitters (no options) o pay via distributor
NON-CAPPED PARTICIPANTS Consume < ~ 500 GJ/d or ~ 5 million m 3 /yr of natural gas Must pay a carbon charge to the gas utilities Jan 1/18: Customer Facility Total LDC Related Related ¢/m 3 Charge Charge Enbridge 3.3181 0.0337 3.3518 Union Gas 3.3181 0.0240 3.3421 Utilities collect the carbon charge and buy carbon credits Auction price equivalent of $17.60 CAD/tonne
CAP & TRADE
AUCTION PROCEEDS – WHERE DO THEY GO $64 M to improve energy efficiency, reduce greenhouse gases and redirect savings into patient care at 98 hospitals across the province Up to $657M for repairs and improvements to social housing apartment buildings over five years, depending on carbon market proceeds Up to $377M to establish the Green Ontario Fund to help homeowners and businesses save money and fight climate change through programs and rebates
AUCTION PROCEEDS – WHERE DO THEY GO $200 M for public school energy improvements $100 M to help homeowners make home energy upgrades up to $100 M to support municipalities in fighting climate change through projects such as renewable energy and energy efficiency improvements nearly $100 M to help businesses adopt low-carbon technology $92 M for social housing upgrades $93 M for cycling upgrades
AUCTION PROCEEDS – WHERE DO THEY GO $25 M to establish the Low Carbon Innovation Fund to help create and commercialize new low-carbon technologies $20 M to install a network of fast-charging electric vehicle stations $8 M to launch a new pilot program to help fund the purchase of electric school buses that will reduce greenhouse gas pollution while giving students a safe, clean transit option to school
CARBON PRICE FORECASTS Based on Continuation of ON/QC/CA Joint Auctions Excess CA government allowances available through 2022 N.A Uncertainties going forward o June ON Election – C&T continuation? o ON Free Allowances post 2020 (First Compliance Period) o Federal Election Fall 2019 o Federal Carbon Backstop continuation? o Majority of US States slow to move on Carbon legislation
CARBON COST FORECASTS
ELECTRICITY MARKET
ELECTRICITY FUNDAMENTALS - SUPPLY Generation – Ontario has a mixture of generation types – gas fired generation, solar, wind, hydroelectric and nuclear generation. Interties – Ontario is interconnected to neighbouring states and provinces with interties on the transmission grid. This increases reliability of supply. Storage – Generally there is no “grid level” storage per se, but the IESO is investigating new large scale storage technology. Phase I program procured 34 MW of energy storage / ancillary services. In Phase II another 16.75 MW for nine storage projects were done.
EXISTING ONTARIO GENERATION CAPACITY Installed Generation in Ontario March 2018 Installed Generation Biofuel Solar 1% 1% Nuclear 13,009 Wind 12% Hydro 8,472 Nuclear 35% Gas / Oil 10,277 Wind 4,313 Gas / Oil 28% Biofuel 495 Solar 380 Hydro 23% Total 36,946 Total Generation Capacity is 36,946 MW
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