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Natural Gas - Frequently Asked Questions (FAQs)

How are natural gas prices determined in Canada?

The price paid by consumers is made up of three parts:

  1. Natural Gas Commodity Cost

    This is the price paid by local distribution companies or gas brokers for the gas they buy on behalf of consumers. It is called the "commodity" cost. These prices are negotiated between sellers and buyers, usually under short-term contracts. Key factors affecting the commodity price include: supply, demand, storage levels in North America and taxes.

    Typically, prices increase during the winter months when demand is greater and decrease during the summer months when demand is lower. Natural gas prices are also influenced by oil prices. This happens because some industrial users and power generators are able to switch between oil and gas when the price of either commodity is high. When more industrial users switch from oil, the increased demand for gas contributes to an increase in the price of gas. However, the linkage between oil and gas prices is decoupling, primarily due to decreased use of residual fuel oil for industrial processes. Conversely, the increasing use of natural gas for electricity generation enables more substitution between coal and natural gas as fuels and is strengthening the pricing relationship between the two hydrocarbons.

  2. Pipeline Transportation Cost

    The cost of transporting the gas through pipelines is called the transportation or transmission cost. These costs are made up of the pipeline tolls and tariffs for transporting the gas from the well to the distribution system. Interprovincial transportation tolls are set by the pipeline company and must be approved by the National Energy Board.

  3. Local Distribution Cost

    This is the cost to transport natural gas to homes through the local company's system. Usually within a city, distribution rates are set once each year, and are regulated at the provincial level. For more information, please contact your provincial regulator.

Who regulates natural gas prices?

Natural gas "commodity" prices are unregulated and change according to market conditions, but the commodity price charged by a local distribution company to its customers must be authorized at the provincial level. The commodity price charged by the local distribution company reflects only the cost of purchasing the gas on behalf of its customers, with no markup.

The local distribution rates are regulated by provincial regulatory boards or commissions, or directly by a provincial government.

Interprovincial and international pipeline transportation tolls and tariffs are regulated by the National Energy Board. The tolls and tariffs are decided through a public hearing process or through negotiations between pipeline companies and shippers. These negotiated settlements must be approved by the NEB.

Does the NEB regulate the exports and imports of natural gas?

Yes. Under the National Energy Board Act, the Board may authorize the exports and imports of natural gas. Authorizations from the Board can be short or long-term.

Most exports today are short-term. These exports are issued for periods of up to two years and have no restrictions on volume, price or destination. After the exports occur, the exporter is required to file information on its export transactions with the NEB.

Long-term export licenses may be authorized pursuant to an export application, which the NEB may issue for periods greater than two years and up to 25 years. These authorizations set volume and destination. The pricing structure must also be approved by the Board. Before a long-term licence is issued, the NEB will convene either a written or oral public hearing where Canadian gas buyers may file a complaint if they have been unable to contract for gas on the same terms and conditions as contained in the export contract. As with short-term exports, after the exports occur, the exporter is required to file information on its export transactions with the NEB.

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Date Modified:
2012-01-03