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?
- How do natural gas commodity prices affect my natural gas bill?
- 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:
- the natural gas itself (the gas charge or gas commodity charge);
- long-haul pipeline transmission charges; and,
- 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 company´s 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.
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.
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 National Energy Board (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. Websites 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?
Provincial and Territorial Regulatory Boards:
Major Canadian Local Distribution Companies:
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