PG&E; Paying Lower Price on Canadian Gas

The deregulation of the Canadian natural gas market last week already has resulted in lower prices for Pacific Gas & Electric, the largest importer of Canadian gas.

The San Francisco-based utility said its Canadian supplier, Alberta & Southern, lowered its Canadian border price by 26 cents to $2.90 per 1,000 cubic feet. The reduction will result in savings of $80 million a year, the utility said. PG&E;, which serves Northern California, said the savings will be passed on to its 3 million customers.

The new price is about 3% lower than the cost of gas transported from Alberta to Toronto, the benchmark price under regulation. Before the Canadian government lifted the pricing restrictions last Thursday, Canadian producers weren’t allowed to export gas for less than it cost to deliver to Toronto.

Canada’s new pricing rules allow producers to export gas at prices prevailing in markets near the border. The government also lifted its quotas on the amount of gas that can be sold under short-term agreements. PG&E;’s short-term purchases had been restricted to no more than 100 million cubic feet a day.

40% of PG&E; Supply

PG&E; buys between 800 million and 900 million cubic feet of gas daily from Canada, about 40% of PG&E;’s supply. The utility is currently buying 700 million cubic feet of gas daily at the new border prices and an additional 165 million cubic feet daily at the reduced short-term rates. Those reduced rates are pegged to prices in the U.S. spot, or non-contract, market. Those prices are currently 17% lower than PG&E;’s Canadian border price.

Energy market analysts didn’t expect much new Canadian gas to be exported to the United States as a result of deregulation.

Robert Price, an analyst with Peters & Co., an energy research firm in Calgary, Alberta, said he expected Canadian exports next year to hold steady from the 900 billion cubic feet estimated to be sold this year. However, he said, the amount of gas sold under short-term contracts would increase to between 50 billion cubic feet and 75 billion cubic feet from virtually nothing now.

Price said American gas importers would convert a portion of their long-term purchases to short-term purchases to take advantage of lower prices. “PG&E; is a good example of that,” he said.

Benjamin Schlesinger, a Bethesda, Md., energy analyst, noted that many American pipeline companies are unwilling to carry cheap gas for customers, a development that would hamper Canadian imports. “There are a number of impediments to the vigorous marketing of Canadian gas,” he said.

PG&E; isn’t the first to gain a price break on Canadian gas. Southern California Gas has purchased gas from Canada at prices below the Toronto benchmark price as a result of an earlier agreement between the Canadian and U.S. governments. The gas company said its price at the Canadian border is $2.70 per 1,000 cubic feet. The final cost to the gas company, however, is $4.23 per 1,000 cubic feet because of the high cost of transporting the gas to its system.