Natural Gas Prices : a Reassuring Message for Gaz Métro Customers

September 14, 2005 - Press releases

Montreal, September 14, 2005 - In light of recent energy price fluctuations and in response to various statements made over the past few days regarding a possible price shock in the natural gas market, Gaz Métro wishes to set record straight in relation to the current situation.

For residential customers, a rise in natural gas supplies is not directly and immediately reflected in the invoices received. Through a number of different mechanisms and pricing methods, all of which are overseen by the Régie de l'énergie, price shocks are limited in the short and medium term.

Natural Gas Price Hikes only Affect Half of the Customer's Bill

The bills issued to natural gas users are made up of several components. The two main elements cover the distribution and provision of natural gas. Only the latter item - which represents approximately 50% of a residential customer's bill - is subject to price variations. A 10% hike in the molecular price works out to a 5% increase in the total bill. Gaz Métro does not make any money from supplying natural gas, which is resold at the same price at which it is bought, with no mark-up.

Last year, the Régie de l'énergie du Québec approved an overall decrease in natural gas distribution rates. Over the past three years, Gaz Métro's cumulative share of distribution revenues dropped 12% for its entire customer base, including residential users. For the current year, our application to the Régie de l'énergie included a request to maintain pricing at a rate below inflation. This pricing rate is fixed each year.

Financial Tools Available for Limiting Price Shocks

Gaz Métro resells its natural gas supply to clients at the same price for which it is bought. This price is set on a monthly basis, according to rules that are entrenched by the Régie de l'énergie. In order to ensure that its customers receive the best, most stable pricing possible, a team of professionals monitors the market on a daily basis to buy natural gas at the best price available and holds it in reserve for future use, as is currently the case.

Certain financial mechanisms are also put into place, with a view to avoid the imposition of overly high price fluctuations to clients. This is why Gaz Métro customers do not generally pay market price for natural gas; rather, a lower price is charged, mostly in periods of unexpected price hikes such as the current one. At the present time, the price protection thus created by the various financial tools serves to cushion our customers against price shocks in the short and medium term.

Other Measures

Gaz Métro offers its customers a vast array of energy efficiency programs that are intended to help reduce their energy consumption through the use of better-performing appliances.

For its business clients, Gaz Métro works closely with natural gas suppliers to offer a fixed-price natural gas program. Clients who sign up for this plan can buy natural gas at a pre-established price for a specific period. The plan is considered to be a form of insurance, which - similarly to a closed mortgage loan - protects the client against any sudden price hikes.

Gaz Métro is also one of three partners involved in a methane tanker terminal project, the objective of which is to look for liquefied natural on international markets. Diversifying our portfolio of supply sources in this way will, among other things, help reduce the pressure currently associated with supply and demand.

Natural Gas Pricing Versus Other Energy Sources

Under the current economic conditions, all sources of energy are subject to price increases. One example is fuel oil, which underwent record price hikes over the last few weeks. Another example is the electricity market's rate increase application.

Compared to fuel oil, natural gas clearly offers benefits to residential and business clients alike, both in terms of savings and protecting the environment. When compared to electricity, natural gas remains more competitive for large-volume purchasers, while remaining almost equal in other segments of the business market.

Future Projections

The energy market is highly volatile and currently undergoing a major transformation. Demand for all forms of energy is, in general terms, on the rise throughout the world. However, the additional supplies needed to meet this demand have at times been late in arriving. Under these circumstances, events such as Hurricane Katrina could create a temporary imbalance in a situation that is already somewhat fragile.

Like any other commodity, natural gas can also be affected by the law of supply and demand. Any attempt to speculate on the price of natural gas would therefore be hazardous.

Source:  Gaz Métro
Information:  Julie Garneau

Public and Governmental Affairs
514 598-3183

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