• Supply (production and imports)
• Demand (consumption)
• Other factors
• Gaz pricing mechanism
• Gaz purchase mechanism
• Definitions

Click to enlarge the pictureDid you know that in 2006, the natural gas market standard deviation was five times greater than the Dow Jones Industrial Average? Did you know that natural gas is the second most volatile traded item in the world, after electricity?

Given that pricing in Alberta is based on market activity on the NYMEX, adjusted for geographical delivery point and currency, a financial differential exists between these two markets. Historically, this basis has been close to US -$0.50/MMBtu but has grown to –US $1.30/MMBtu. This means that gas contract in Alberta has historically been US $0.50/MMBtu less expensive than the corresponding NYMEX contract. Therefore, the wider the AECO basis, the lower the price for natural gas in Alberta relative to the NYMEX Henry hub in Louisiana, all else being constant.

Click to enlarge the picture Canadian natural gas users benefit from a strengthening Canadian dollar (or a weaker US dollar) because term prices are based on NYMEX forward contracts. Therefore, the stronger the Canadian dollar, the lower the price for natural gas in Alberta, all else being constant.

Currency Effect: At today’s price levels, every US $0.01 move in the Canadian dollar, extrapolates to approximately a C $0.08 move in Aeco pricing. The weaker the Canadian dollar, the higher are fixed prices in Alberta. All other things being equal, if the Canadian dollar were to move for example from US $0.90 down to US $0.80 level, Canadian gas prices would surge by about CA $0.80/Gj or about 3¢/m³.

Click here to return to the short version of this article.