A new National Energy Board (NEB) report found a “very close linkage and consistency” in gas prices between domestic markets in the Canadian Maritimes provinces and export markets in the United States.

Although Maritimes buyers were hindered somewhat in the underdeveloped local marketplace, on average they paid prices that were less than or equal to what their counterparts in the United States paid between November 2002 and October 2003, the NEB determined.

“While acknowledging that some natural gas buyers [in the Maritimes provinces] will continue to face considerable challenges in this market, the board remains satisfied that the Maritime natural gas market continues to function well, given its stage of development,” the NEB said in its report, titled “Natural Gas Prices in the Maritimes.”

The report was the result of NEB’s commitment to enhance its monitoring of the Maritimes natural gas market following a hearing held in Fredericton in the summer of 2002 (see NGI, Sept. 23, 2002). The New Brunswick government fought a losing battle during the hearings to establish new procedural rules for short-term gas export orders to ensure that eastern Canadians would be able to compete for natural gas on an equal level with foreign gas purchasers.

While officials in New Brunswick felt provincial gas buyers were at a disadvantage to the large buyers in the Northeastern United States, many in the gas industry viewed the proposed rules as export restrictions that would hinder market growth and development.

Following the hearings, the NEB began public reporting of monthly prices for exports at the St. Stephen location and moved to provide additional information on the wholesale price of gas. The board also decided to undertake a survey of the wholesale prices paid by Canadian buyers in the Maritimes. The results show that Canadian buyers “have historically had access to gas at prices similar to export customers.”

However, in the Maritime domestic market, the average price of gas is “more sensitive to transactional details such as the terms and conditions, volumes and contracting practices than in a larger market with a variety and greater number of players and transactions. As a result, the difference between the average domestic and export price may not be a perfect theoretical netback relationship,” the NEB admitted. “In theory, buyers located closer to the source of supply would be able to purchase gas at lower prices than similar buyers further downstream who must pay higher transportation costs.”

Nevertheless, the domestic and export markets have similar seasonal and monthly pricing patterns, the agency found. And while domestic prices may have risen to higher or lower levels than the average export price, the weighted average domestic prices were equal to or less than prices for exports.

What would improve market development and transparency would be a greater number of market participants in the Maritimes gas market and a greater amount of incremental gas supply, the NEB said.

“New gas supply development or the importation of liquefied natural gas (LNG) into the region would help support a large number of buyers and sellers and may eventually lead to a more transparent and distinct Maritime natural gas market,” according to the report. “Having incremental gas supply may also enable domestic buyers to better leverage their advantage of being located closer to regional supply.”

This report is also available on the NEB’s website at www.neb-one.gc.ca under What’s New!

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