Natural Gas Pricing in Canada
The Canadian and U.S. natural gas markets form an integrated network comprising thousands of kilometres of pipelines that transport large volumes of natural gas over long distances, from producing areas to consumers. Any changes in transportation costs, infrastructure constraints or weather in one region, in addition to having significant local impacts, can also have effects on other regions. Examples of this include price increases due to hurricanes in the Gulf of Mexico impacting natural gas production and pipeline disruptions impacting natural gas deliveries.
Figure 1 summarizes the production, consumption, exports and imports of natural gas in 2006.
Natural gas production is fairly consistent year round, but demand usually peaks in the winter because of increased heating needs. Natural gas storage near the markets helps to better manage supply and demand during seasonal fluctuations. Storage allows production levels and pipeline volumes to remain fairly constant and respond effectively to sudden changes in demand. Acting as a buffer between production and consumption, storage reduces transportation costs. In Canada, the majority of natural gas storage is split between Ontario and Alberta.
The natural gas industry reaches its customers through local distribution companies (LDCs). They receive gas from pipelines and deliver it to customers’ homes, offices and businesses, within a franchise area. The LDCs are regulated by provincial regulatory boards or commissions. In some cases the LDC is directly owned by the provincial governments.
The Canadian industry
Natural gas represents approximately one quarter of all energy consumed in Canada. In 2006 alone, consumption amounted to 226 million cubic metres per day (8.0 billion cubic feet per day). The main uses include space heating of residential and commercial buildings, process heating in the industrial sector, generating electricity. Components of natural gas are also used as non-energy raw materials processed by the petrochemical industry.
Natural gas production mostly comes from areas following the continental divide, from the Gulf of Mexico to the Northwest Territories. Canada produced about 25 per cent of the combined natural gas production of Canada and the U.S. in 2006. Almost 98 per cent of Canadian natural gas is produced from the Western Canada Sedimentary Basin (WCSB). Alberta is the largest producer with roughly 77 per cent while British Columbia and Saskatchewan contribute roughly 16 and 4 per cent, respectively, of the total from the WCSB.
About 47 per cent of Canadian production is consumed within Canada. The the remainder is exported to the United States. Natural gas exports in 2006 supplied about 16.5 per cent of estimated U.S. consumption. The U.S. central/midwest and northeast regions historically receive the greatest portion of Canadian exports. Approximately 26.4 million cubic metres per day (0.9 billion cubic feet per day) of natural gas was imported into Ontario from the U.S. in 2006.