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.

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