How Natural Gas Gets to You
In the ground
Natural gas wells are drilled by oil and gas exploration companies (gas producers) to tap into gas formations. If gas is found in commercial quantities, well equipment, gathering and other facilities may be installed to put the gas into production. Well site facilities are installed to measure the gas, remove water, oil, sulfur and other impurities. The gas then flows into underground gathering pipelines that transport the gas from the "wellhead" to a transmission pipeline or processing plant. At the processing plant, natural gas liquids and other impurities are removed.
About 80 per cent of the mineral rights in Alberta are owned by the province. The gas producer pays the government a royalty share of the gas. From when the natural gas is produced until the natural gas is sold, the gas producer retains ownership or "title" to the gas. Producers may sell the gas at either the wellhead, the outlet of a gas processing plant (called the plant gate), on a gas transmission system, at a storage facility, or at the inlet to a utility system called the city gate or directly to the end consumer.
At any of these points, natural gas may be sold to gas marketers, midstream companies, utilities, or industrial and other consumers. Regulated rate providers and competitive retailers buy gas from marketers and producers and sell the gas to you at either regulated rates or at rates specified in a contract between you and the retailer. The natural gas delivery company then transports this gas through their gas distribution system to your house or business gas meter.
Transmission pipelines
High-pressure, high-capacity transmission pipelines act as toll highways to transport natural gas from the well or processing plant to major markets. In Alberta, most of the gas produced flows into the NOVA Gas Transmission system (Alberta portion of the TransCanada pipeline system). NOVA transports the gas from the well or gas plant to industrial consumers and gas utilities in Alberta and to export pipelines at the Alberta border.
Distribution pipelines
Low-pressure local distribution pipeline systems typically connect to high-pressure gas transmission pipelines and deliver natural gas directly to your home or business gas meter. The major three investor-owned distribution companies (ATCO Gas North, ATCO Gas South, and AltaGas Utilities) service about 88 per cent of Albertans. Natural gas co-operatives service about eight per cent and municipally owned utilities service about four per cent of Albertans. There are currently 65 natural gas co-operatives, 22 municipally owned gas utilities, four county owned gas utilities, and nine first nations gas utilities.
The distribution systems are fully regulated. Investor-owned distribution companies are regulated by the Alberta Energy and Utilities Board (EUB), while municipally owned systems are regulated by their municipal councils, and natural gas co-operatives are regulated by their elected board members.
Natural Gas Market
Canada is the world's third-largest supplier of natural gas and Alberta produces over 80 per cent of Canada's supply. Alberta exports approximately three-quarters of its natural gas production outside the province's boundaries. About half of the five trillion cubic feet of gas produced each year in Alberta is exported to the United States, and about one-quarter flows to other points in Canada. To put this in perspective, one cubic foot of natural gas is roughly equivalent to the volume of air found inside a basketball. A typical house uses about 128,000 cubic feet (135 GJ) of gas per year.
The laws of supply and demand determine prices in Alberta's natural gas market and guide gas producers' decisions regarding investment in new drilling. Alberta's gas prices are influenced by supply and demand throughout North America. Some factors affecting natural gas prices include weather conditions, storage inventory levels, prices of competing oil products, and gas drilling levels. The competitive natural gas market invites new investment, resulting in new wells being drilled and new export opportunities.
Natural gas providers sell gas to you either through regulated rates, if they are a regulated rate provider, or through a contract, if they are a competitive retailer. If you choose a competitive retailer, the contract you sign sets out the price you pay for your natural gas. If you choose regulated service, that provider's regulator ensures that the rates you pay are fair and reasonable.
Regulated rate providers' energy rates are based on expected gas prices for the month and any balances carried forward from prior months. Regulated rate providers are not allowed to make a profit on the cost of gas. It is a flow-through cost that is passed on directly to consumers. The rate is called the Gas Cost Recovery Rate (GCRR) or the Gas Cost Flow Through Rate (GCFR). This rate changes every month based on prevailing market prices. Regulated rate providers may, with their regulator's approval, recover other non gas-related costs through charges based upon a customer's gas consumption.
Competitive retailers offer fixed prices for one, and up to five-year terms. Offers vary with prevailing market prices, but your rates are fixed once you enter into a contract. Some retailers offer rates that change monthly.
