FREQUENTLY ASKED QUESTIONS ABOUT NATURAL GAS PRICES
My natural gas bill lists several items. What are all these charges?
Who buys the natural gas commodity for me?
How does it work when I get my natural gas commodity from a distributor?
How does it work when I get my natural gas commodity from a broker or marketer?
What is the difference between getting the natural gas commodity from a distributor versus from a broker or marketer?
Why are current natural gas bills so high?
Why are natural gas commodity prices so high?
How do natural gas commodity prices affect my natural gas bill?
What is the outlook for natural gas prices this winter?
What is Canada's long-term natural gas supply outlook?
What is the longer-term outlook for natural gas prices?
Are natural gas prices regulated?
What do provincial authorities regulate?
Why does the federal government not regulate natural gas prices?
How is the export of natural gas regulated?
Where can I get additional information?
My natural gas bill lists several items. What are all these charges?
Natural gas bills consist of three main elements:
1) the natural gas itself (the gas charge or gas commodity charge);
2) long-haul pipeline transmission charges; and,
3) local distribution and storage charges.
The natural gas charge or natural gas commodity part of your bill is typically the wholesale price of natural gas in a producing area. This wholesale price is the price that producers receive for gas from their wells, and this price fluctuates constantly with changing supply and demand.
The second charge covers the costs of long-range high pressure pipeline transportation of natural gas from producing areas to local distribution systems. These charges are regulated by federal or provincial authorities.
Local distribution charges relate to the local distribution companyìs short-range delivery of gas to your house or business using low-pressure pipes. These charges may also include storage, load balancing, or other costs. Distribution rates are regulated by provincial authorities. For more details on your natural gas bill you should contact your natural gas local distribution company or your provincial regulator. A list of such contacts is shown at the bottom of this FAQ.
Who buys the natural gas commodity for me?
In most provinces, consumers have two basic options. In the first option, consumers let the natural gas distribution company purchase the natural gas commodity for them. In the second option, consumers ask a natural gas broker or marketer to purchase the commodity for them.
How does it work when I get my natural gas commodity from a distributor?
The distributor buys gas on an on-going basis from various natural gas producing companies or marketers, under short-term (1-month) or longer-term contracts. The distributor tries to buy gas at the lowest prices possible. The provincial regulatory authority scrutinizes these purchases to ensure that the gas was prudently purchased. Then, the distributor bills consumers for the natural gas commodity, charging exactly the same price as the price paid to suppliers. No markup of the natural gas commodity is allowed. Natural gas commodity prices are not regulated, and do vary from month to month. This causes the natural gas commodity rate which is passed through to consumers to change. The major natural gas commodity markets in Canada are located in southern Alberta and at Dawn, Ontario.
How does it work when I get my natural gas commodity from a broker or marketer?
The broker/marketer also buys gas from various natural gas producing companies or marketers, and then resells this gas to consumers (all consumer billing remains with the distributor). Broker/marketers typically offer consumers a fixed price natural gas commodity option. The price the consumer pays for the natural gas commodity may be fixed for a period of one to five years. Regulators do not have to approve broker/marketer purchases or resales of gas.
What is the difference between getting the natural gas commodity from a distributor versus from a broker or marketer?
The natural gas commodity rates charged by distributors change as natural gas commodity prices rise and fall. Natural gas commodity rates charged by broker/marketers are fixed for a set period of time. Typically, the fixed natural gas commodity rate charged by a broker/marketer is higher than the current rate charged by a distributor. Consumers pay for the security of knowing rates will not change for a set period of time.
Why are current natural gas bills so high?
In answering this question, it is helpful to remember the three components of natural gas prices that are paid by the consumer: the natural gas commodity cost, the pipeline transportation cost and the distribution cost. Pipeline and distribution charges are regulated, and typically do not vary dramatically from year to year. Commodity costs are not regulated, and account for the bulk of recent price increases as well as for most of the natural gas price volatility experienced by consumers.
Why are natural gas commodity prices so high?
Natural gas commodity prices are determined by continental changes in natural gas supply and demand. The conventional natural gas producing regions in the United States and Canada did provide ever-increasing volumes of natural gas for decades. Producers drilled the largest and highest-quality reservoirs first. Now, finding new natural gas involves drilling into smaller and lower-quality reservoirs. Thus, more and more wells are needed in order to replace old wells which have declined, and increases in overall production capacity come about more slowly.
Several factors are acting in concert to keep natural gas commodity prices where they are today, mainly:
- Steadily growing North American natural gas demand, due to the clean-burning nature and overall attractiveness of natural gas as a fuel for homes, businesses, industries, and electric power stations;
- Slow growth in North American natural gas production, due to the declining quality of natural gas prospects which can be drilled;
- High prices for crude oil and other competing fuels;
- Hurricane-driven production shut-ins in the US Gulf of Mexico offshore producing region; and,
The looming winter heating season, which always brings increased natural gas demand due to space heating needs, and which also usually causes higher prices.
How do natural gas commodity prices affect my gas bill?
For most Canadian residential gas consumers, an increase in natural gas commodity prices will eventually result in an increase in consumer prices or "burner-tip" prices. However, the burner-tip price increase will be significantly less in percentage terms than the increase in the commodity price, as the cost of the gas commodity is only one part of the gas bill.
For most Canadian residential gas consumers, an increase in natural gas commodity prices will eventually result in an increase in consumer prices or "burner-tip" prices. However, the burner-tip price increase will be significantly less in percentage terms than the increase in the commodity price, as the cost of the gas commodity is only one part of the gas bill.
What is the outlook for natural gas prices this winter?
Natural gas commodity prices are expected to be relatively high this coming winter of 2005/06. High world crude oil prices and natural gas production losses due to Gulf of Mexico hurricanes are major factors. However, prices will greatly depend on the weather. A significant portion of natural gas demand is used for building and water heating in the residential and commercial sectors. This demand is variable and driven by weather. Moderate temperatures this winter will likely reduce heating demand and temper natural gas prices. Conversely, extremely cold weather would have the opposite effect, increasing demand and leading to higher natural gas prices.
What is Canada´s long-term natural gas supply outlook?
The National Energy Board (NEB) calculates that Canada has a total of approximately 450 Trillion cubic feet (Tcf) of natural gas resources remaining. This includes proved reserves (wells currently producing) plus discovered resources (wells in the far north not yet on production because of a lack of pipelines) and undiscovered resources (amounts geologists estimate will be found in future). At current production rates, these resources would last over 74 years.
Current estimates of natural gas resources do not include the even larger amounts of methane hydrates and shale gas which are known to exist in the subsurface, but which are not currently counted as resources, because production technology does not exist and the natural gas is uneconomic to develop. With new technology development, some of this natural gas could become recoverable, and so could contribute to production in the future.
What is the longer-term outlook for natural gas prices?
Future natural gas prices are very difficult to predict. In theory, prices for non-renewable resources would rise in real terms over time. However, there are many mitigating factors. Technology improvements tend to reduce production costs, increase the efficiency of gas-using equipment, reduce gas demand, and reduce prices. Lower relative prices for other fuels may cause fuel switching away from natural gas, causing lower gas demand and prices. Finally, new supply areas and sources, such as northern Canada, liquified natural gas, and coalbed methane, could increase supply thereby lowering prices. The NEB periodically provides natural gas commodity price forecasts. Natural Resources Canada (NRCan) also periodically publishes the natural gas price forecasts of various organizations. The relevant NEB and NRCan Web Sites are provided below.
Are natural gas prices regulated?
Of the three parts of a typical natural gas bill (commodity, pipeline transmission, and distribution), the commodity price is not regulated, while pipeline and distribution rates are regulated. Commodity prices are determined by the interaction of natural gas supply and demand. Natural gas prices rise and fall every day with changing supply and demand. Important natural gas markets and pricing points in Canada are the intra-Alberta market, and the Dawn, Ontario market hub.
Pipeline transmission and distribution rates are regulated, with rates based on the cost of providing services. Pipeline rates are typically regulated by the NEB, and local distribution rates are regulated by provincial authorities.
What do provincial authorities regulate?
Provincial authorities regulate distribution companies and oversee natural gas broker/marketing companies in their jurisdictions. If you have questions about natural gas distribution charges, or natural gas broker/marketers, you should contact the relevant provincial authority. Web Sites of the provincial regulatory boards are provided below.
Why does the federal government not regulate natural gas prices?
From 1975-1984 Canadian natural gas prices were set by a series of federal-provincial agreements. However, because natural gas demand can rise or fall so rapidly, it was difficult for regulators to determine the appropriate price for natural gas, that would balance the supply of gas with the amount of gas consumers demand. Price regulation tends to produce either gas shortages or unnecessarily high gas prices (or swing between the two). This is not in the best interests of consumers or the natural gas industry.
The 1985 Agreement on Natural Gas Prices and Markets between the Federal government and Alberta, British Columbia and Saskatchewan deregulated natural gas commodity prices in Canada. The immediate result was a dramatic drop in gas prices, indicating that regulated prices had been set too high. The US went through a similar deregulation process at the same time. The result was an open and integrated North American market for natural gas. This structure was reinforced by the Canada-US Free Trade Agreement of 1989, and by the North American Free Trade Agreement of 1994.
How is the export of natural gas regulated?
The federal government, not the provinces, regulates energy exports. Exports of natural gas, oil and electricity have to be authorized by the NEB.
Where can I get additional information?
Federal Government:
Natural Resources Canada, Natural Gas Division