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

Typical consumption patterns vary throughout the year and that it is impossible to purchase a variable amount of gas in the open market that corresponds to daily usage.   Deliveries are based on a firm volume “nomination” which should equal the average consumption at year-end.  This enables TransCanada to maximize usage of their pipeline during the entire year to reduce costs for all consumers.  In order for the LDC to balance consumption and deliveries, they may change the nomination during the year if actual consumption is greater than or smaller than expected.  The difference between actual consumption and delivery pattern is the load-balancing component of Gaz Metro’s invoice.

Click to enlarge the picture Once a nomination has been determined, a firm daily volume of natural gas is purchased at the AECO/NIT hub, which is a virtual trading point in the center of major transmission pipelines in Alberta.  A transportation fee is then added for the Nova Gas Transmission Limited pipeline to transport that quantity of gas to the Empress delivery point, the interconnect of the TransCanada pipelines, at the Alberta/Saskatchewan border.

In order for the requested volumes of natural gas to get from Empress to eastern Canada, it must be transported via TransCanada’s pipeline.  TransCanada requires that a certain percentage of gas be added to be used to power compression stations along its pipeline.  This is called the fuel rate.  The fuel rate depends on pipeline efficiency and is published monthly by TransCanada.  Although they fluctuate regularly, an average fuel rate is between 5% and 6%.  For example, in order for 100 Gj of gas to be delivered to Gaz Métro’s franchise, a total volume of 105 Gj (100*1.05) must be nominated at Empress.  The extra 5Gj being used to supply the compressor stations along the pipeline.

Once the nominated volume has reached eastern delivery areas (the 100Gj), the LDC charges distribution fees for the service of transporting the gas on their local pipeline network directly to a buyer’s facilities.