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Natural gas price hikes will fuel inflation and hit low-income Canadians the hardest

Click to play video: 'Natural gas prices will push heating bills higher this winter' Natural gas prices will push heating bills higher this winter
WATCH: Canadians are expected to see increases on their energy bills this fall and winter, as the energy industry struggles to recover from the pandemic. Anne Gaviola explains how high the prices are expected to climb, and whose wallets will be hit hardest – Oct 7, 2021

After almost two years of supply shortages and cost increases due to the COVID pandemic, here’s one more thing that’s going up in price this winter: natural gas.

Already, a number of Canadian natural gas distributors have hiked their rates.

FortisBC Energy Inc., British Columbia’s largest natural gas distributor, warned in September it would increase rates starting in October, with the majority of customers expected to pay around $8 more a month.

Ontario’s Enbridge Gas said the typical residential customer will see a bill increase of about $7 to $44 a year depending on where they live.

Manitoba Hydro has said the annual bill for a typical household will increase by approximately 8.7 per cent, with larger volume customers potentially seeing increases as high as 19 per cent.

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Read more: ‘It’s going to be an expensive winter’: Gas prices to push heating bills higher

But the impact of pricier natural gas goes well beyond bloated utility bills and will hit low-income Canadians the hardest, says Sohaib Shahid, director of Economic Innovation at the Conference Board of Canada.

Click to play video: 'What’s fueling the price hike at the pumps?' What’s fueling the price hike at the pumps?
What’s fueling the price hike at the pumps? – Oct 7, 2021

On the one hand, higher heating bills will push up shelter costs, which already eat up almost a third of the total annual spending of Canadians in the bottom 20 per cent of the income distribution, Shahid says. By comparison, those in the top 20 per cent devote just a fifth of their annual spending to things like rent, mortgage and utilities.

On the other hand, the rising cost of natural gas and commodities also puts upward pressure on the prices of a variety of other products.

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Higher energy costs, for example, make it more expensive to produce, transport and store food, another major drain on low-income families’ budgets, Shahid warns.

Read more: Rising food prices are forcing grocery shoppers to change habits: ‘It’s been hard’

And for manufacturers who rely on natural gas, the energy price hike could be the umpteenth cost increase after months of struggling with pricier inputs and supply-chain headaches.

“There’s a lot of fatigue now among manufacturing companies in absorbing any more input costs. So it is very likely that any high-end increases in costs are transferred to consumers from now on,” Shahid says.

Click to play video: 'International energy shortages impact food prices in Canada' International energy shortages impact food prices in Canada
International energy shortages impact food prices in Canada – Oct 3, 2021

What's behind the natural gas-price increase?

The reason natural gas prices are climbing will sound familiar: supply cannot keep up with demand.

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As COVID-19 restrictions loosen again and economic activity around the world picks up speed, the need for natural gas has increased fast. At the same time, the uncertainties of the global pandemic have made producers reluctant to make significant capital investments in new drilling programs, and Canadian natural gas storage levels are at five-year lows.

It’s the same supply-demand mismatch that has affected all kinds of commodities and consumer products — from agricultural staples through patio furniture to used cars — and pushed inflation around the world to multi-year highs. In Canada, the annual inflation rate reached 4.1 per cent in August, an 18-year record.

Read more: U.S. worries about winter prices as global natural gas shortage nears borders

In the energy market, efforts to move away from coal production and retire nuclear power plants have also increased the demand for natural gas. At the same time, extreme weather events linked to climate change have resulted in unusually low energy output from other sources, including renewables. In California, for example, a long drought has restricted the state’s ability to generate electricity through hydropower. Solar has also been constrained by smoke cover from wildfires, analysts said.

In Europe and Asia gas prices have more than tripled this year, causing manufacturers to curtail activity from Spain to Britain and sparking power crises in China.

The situation isn’t quite so dire in Canada and the U.S., which have their own supply of natural gas, but prices are still higher than they’ve been in more than six years.

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Click to play video: 'Canada’s inflation rate spikes in August to highest level in 18 years' Canada’s inflation rate spikes in August to highest level in 18 years
Canada’s inflation rate spikes in August to highest level in 18 years – Sep 15, 2021

How to curb your heating bills

The number one thing you can do to keep a lid on your gas bills is lowering the temperature on the thermostat, says personal finance expert Rubina Ahmed-Haq.

A temperature reduction of just one degree can lower your heating costs by two per cent, she says. Ahmed-Haq calculates she spent $2,600 in 2020 to heat her home, meaning a two-percent reduction would work out to savings of $52 per year.

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Read more: From takeout to gas prices, how to protect yourself from rising inflation

It helps to have a programmable or smart thermostat, which makes it easy to lower temperatures at night and when the house is empty based on your schedule. Even with an old-fashioned thermostat, though, you can make it a habit to turn down the heat before going to bed or heading out, she says.

Tackling any drafty spots in your house will also curb your heating costs, Ahmed-Haq says. And while it may be too late in the season to upgrade your windows, closing your curtains, blinds or drapes — when you’re not home — also helps trap more of the heat, she adds.

Finally, make sure you’re not overworking your furnace.

“It can be as easy as just checking your furnace once a year, making sure you’re changing the filter out during the recommended time,” she says.

—With files from the Canadian Press and Reuters

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