Respecto a las Teorías sobre el Ordenamiento Territorial

Note: The largest producers are listed in order of 2000 market share; there are hundreds of producers in all.

EnCana, Burlington Resources Canada, Devon Energy, Canadian Natural Resources Ltd, BP Canada Energy, Talisman Energy, ExxonMobil Canada, Petro-Canada, Shell Canada, Husky Energy, Imperial, Rio Alto, Conoco, Anadarko, PennWest,

Apache, Paramount, Chevron, Murphy, Enerplus

Owners and Operators of Gas Transmission Pipelines in Canada

British Columbia: Westcoast Energy (owned by Duke Energy Gas Transmission Canada);

shorter pipelines operated by TransCanada, Foothills, Alliance

Alberta: TransCanada-Alberta

Saskatchewan: TransCanada, TransGas (owned by provincial government, related to SaskEnergy) Manitoba: TransCanada

Ontario: TransCanada, Union Gas, Vector

Quebec: TransCanada, Champion (GMi-owned), TransQuebec & Maritimes (half GMi-owned) Atlantic Provinces: Maritimes and Northeast Pipeline

Owners and Operators of Gas Distribution Systems in Canada

British Columbia: BC Gas Utility and its subsidiary Centra Gas British Columbia,

Pacific Northern Gas (owned by Duke Energy)

Alberta: ATCO Gas (80% of market), AltaGas, 69 rural cooperatives, 24 municipal utilities Saskatchewan: SaskEnergy (owned by provincial government)

Manitoba: Centra Gas Manitoba (owned by Manitoba Hydro) Ontario: Union Gas, Enbridge Gas Distribution, Westcoast Energy

Quebec: Gaz Métropolitain (97% of market), Gazifère

Atlantic Provinces: Enbridge Gas New Brunswick; Heritage Gas Limited, Nova Scotia

Retail Gas Marketers in Canada

British Columbia: Several marketers serving large industrial and commercial customers Alberta: Eight marketers serving large industrial and commercial customers; of these,

ENMAX Energy and EPCOR Energy Services also have residential customers

Saskatchewan: SaskEnergy (owned by provincial government)

Manitoba: Centra Gas Manitoba, Energy Savings Corporation, Municipal Gas Manitoba Ontario: Alliance Gas Management, Direct Energy, Ontario Energy Savings Corporation,

Enbridge Services, Nexen Marketing, Union Energy, about 20 others

Quebec: Gaz Métropolitain, Coral Energy Canada, ECNG, GCP Energie, Nexen, many others New Brunswick: Enbridge Atlantic Canada, GasCo Energy, Irving Energy Services,

Park Fuels, WPS Energy Services

marketers and customers in Ontario. As a result, the US and Canadian markets are inextricably linked, and supply or price trends in one may influence those in the other.

Gas distribution grids are also regulated by the provinces, but the organisation of these grids is quite varied. In Saskatchewan, Manitoba and New Brunswick, there is a single owner and operator for the distribution grid throughout the province. In Quebec, there are two companies with distribution assets, but one controls almost the entire market. There are two companies with a substantial share of the distribution grid in Ontario and three in British Columbia. In Alberta, while a single distribution company (NOVA) holds 80 percent of the market, it shares the market with another investor-owned utility, 24 municipal utilities, and 69 rural cooperatives.33

Most notably, there is a proliferation of competitive retail gas marketers throughout Canada. There are multiple marketers in every province that consumes significant amounts of gas. Large industrial and commercial firms have been most active in choosing among competing marketers. However, residential consumers are also entitled to choose their suppliers, and substantial numbers have done so in Alberta and Ontario, which are Canada’s two largest gas-consuming provinces. In Alberta, two of eight licensed retailers are actively marketing to residential consumers. In Ontario, there are about 25 licensed gas marketers from which residential customers may choose.

UNBUNDLING AND THIRD PARTY ACCESS

In Canada’s gas market, production is almost entirely unbundled from transmission. The two functions are always performed by separate business entities, and very few producers have financial interests in transmission pipelines. Natural gas commodity prices in Canada were deregulated by the 1985 Agreement on Natural Gas Prices and Markets between the federal government and the provinces of Alberta, British Columbia and Saskatchewan. There are dozens of competing gas producers in the Western Canadian Sedimentary Basin where most of the economy’s gas originates. In the newly developed Scotian Shelf off the Atlantic shorelines of New Brunswick and Nova Scotia, however, there are not yet competitors to the Sable Offshore Energy Project.34

Long-distance gas transmission in Canada has often been separate from local gas distribution. In British Columbia, Alberta, Manitoba, and the Atlantic Provinces, there is ownership unbundling; gas transmission pipelines and distribution systems are owned by different entities. But in Saskatchewan, Ontario and Quebec, major portions of the transmission and distribution networks have common owners. Since transmission and distribution are both common carriers of gas, there is no economic necessity or legal requirement for functional separation between the two.

The 1985 Agreement and the National Energy Board Act ensure regulated third-party access to the gas transmission network. TransCanada and other pipeline companies were required to functionally unbundle their transmission and marketing activities, with information firewalls between them. Gas producers could then compete for the business of power producers and large industrial customers that connect directly to the transmission grid. Subsequently, most provincial governments unbundled the distribution and marketing functions of local distribution companies. This allowed the emergence of a large number of retail gas marketers that arrange for supply of gas from competing producers to smaller residential and commercial customers.

MARKET MODEL AND COM P E T I T I O N

Canada would seem most closely to fit the retail competition model. Many large industrial firms and electricity generators have been able to buy gas directly from producers. Every province with a gas market of any significance has multiple retail marketers offering gas to smaller customers, who may also buy directly from producers if they wish. So in principle, all consumers have a choice

33 _{National Energy Board (2002), pages 4-5, 14, 18, 22, 27, 32, 35.}

34 _{The Sable project was developed by a consortium of Mobil Oil Canada Properties (50.8%), Shell Canada Ltd (31.3%),} Imperial Oil Resources (9.0%), Nova Scotia Resources Ltd (8.4%) and Moshbacher Operating Ltd (0.5%). The associated Maritimes and Northeast Pipeline Project is owned by Duke Energy (75%), ExxonMobil (12.5%) and Nova Scotia Power (12.5%). While ExxonMobil is thus a gas producer with an interest in a gas pipeline, it should be noted that no producer with an interest in the Sable project has an interest in its associated transportation infrastructure.

GAS MA R K E T RE F O R M GAS MARKET SKETCHES: CA N A D A

of suppliers, although few residential customers have elected to switch from their traditional local distribution company to a competitive gas marketer outside of Alberta and Ontario. In Ontario, over 70 percent of all gas used is bought from competitive marketers or from producers directly, rather than from local distribution companies (LDCs), and about half of residential customers buy gas from marketers.35

For smaller customers who do not choose to purchase gas from a retail marketer, provincial authorities and regulatory boards ensure that LDCs pass the natural gas commodity cost directly to consumers without marking it up. They also ensure that the LDCs buy gas prudently and manage costs on behalf of consumers. Gas utilities in almost every province hedge a portion of their gas supplies with the approval of provincial regulators.

Ontario is the largest provincial market for natural gas in Canada and is highly diversified in its gas consumption, with 31 percent of gas demand occurring in the residential sector and 20 percent in the commercial sector in 2001.36 Because of the importance of small customers in this market,

the provincial government has been particularly eager to promote retail choice by such customers. The Ontario Energy Board (OEB) promulgated a Gas Distribution Access Rule in December 2002, which requires that the retail supply and distribution functions of LDCs be unbundled and that gas distributors be required to treat all competing gas vendors on non-discriminatory terms. This should make it more difficult for LDCs to discriminate in favour of the supplies for which they have contracted themselves. In addition, the Ontario government passed the Reliable Energy and Consumer Protection Act in June 2002 which gives the OEB greater power to protect electricity and gas consumers against unfair market practices by retailers.37 Steps like these should help to

encourage supplier choice by smaller customers.

Gas market competition has been enhanced, in recent years, by the emergence of competing gas pipelines. Traditionally, gas pipeline transmission networks have been viewed as natural monopolies in which effective competition is precluded by economies of network linkage and scale. But gas volumes in the Canadian transmission network have been sufficient to support a move away from the natural monopoly model for transportation. With the market entry of the Alliance and Vector pipelines, along with several shorter pipelines that bypass the main gas transmission grid, gas transportation in Canada has come to be characterised by limited pipeline competition.

There is little vertical integration between Canadian gas and electricity markets. There are several competing power generators in most provincial electricity markets, and each generator has a choice among many competing gas producers. No gas producers generate electricity for sale, so there is no incentive for any producer to provide gas on a preferential basis to any generator. By the same token, there is generally no reason why any electricity generator would try to obtain gas from any but the least-cost source of supply. While two gas transmission companies generate power (TransCanada Pipeline and Westcoast Energy), requirements for open access to pipelines effectively preclude them from giving preference to their power plants in gas transportation.

PRICE TRENDS

Following deregulation of wellhead natural gas prices and provision for mandatory open access to the gas transmission grid in 1985, delivered gas prices in Canada declined markedly. For industrial customers, the real price in 2000 US$ was halved from US$150 per tonne of oil equivalent in 1985 to US$73 per toe in 1998. The real price for electric power producers declined by one-third from US$100 per toe in 1985 to US$66 per toe in 1992. Gas prices for households declined by a quarter in real terms from US$233 per toe in 1985 to US$176 per toe in 1998.38

35 _{Canadian Gas Association (2002). National Energy Board (2002), page 27.} 36 _{Natural Resources Canada (2001), page 6.}

37 _{Ontario Ministry of Energy (2003).}

38 _{International Energy Agency (1997) pages II.19-21, IEA (2002a) pages III.30-32. Real prices calculated by dividing} prices in current US$ from IEA by implicit GDP deflators from US Department of Commerce.

The sharp decline in prices that followed wellhead price deregulation is largely due to the fact that prices had been regulated from 1975 through 1985 at what became unsustainably high levels. Drilling incentives caused large amounts of gas to be discovered, and long-term “take or pay” contracts with gas pipelines at high prices caused large amounts of gas to be produced. But high end-use prices, which bundled together regulated production and transportation charges, discouraged gas consumption. Hence, a large “bubble” of excess gas supply developed. Gas pipelines could not resell all the gas for which they had contracted and were threatened with bankruptcy unless the contract terms could be renegotiated. With wellhead price deregulation and unbundling of wellhead prices from transportation charges, along with the introduction of direct sales between buyers and producers, prices soon fell to where supply and demand were in balance. Figure 27 Natural Gas Prices in Canada, 1985-2000

0 50 100 150 200 250 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Price in 2000 US$ per toe

Household Industry Electricity

Source: International Energy Agency, US Department of Commerce.

However, the sustained trend of gas price declines that continued through the mid 1990s can be attributed in large part to improved efficiency in gas production and transportation. The transportation component of efficiency improvement was connected with the rebalancing of supply and demand, as greater demand stimulated by lower prices increased pipeline throughputs. With greater throughput on existing infrastructure, the cost per unit of gas transported was reduced. But the production component of efficiency improvement was due to the increased competition that market reforms brought about. Greater competition, combined with new technologies, helped to halve finding and development costs in constant 1989 Canadian prices per barrel of oil equivalent from more than Can$8 in 1985 to just over Can$4 in 1990.39

Natural Resources Canada (NRCan) notes that the volume of Canadian gas exports to the United States has quadrupled since 1986, “primarily due to the deregulation of prices.” It also states that “expansion of market share in the U.S. is the result of increased wellhead productive capacity, the construction of new pipelines, and competitive funding and development costs for natural gas in Canada.” The clear inference is that competitive gas markets in the United States and

GAS MA R K E T RE F O R M GAS MARKET SKETCHES: CA N A D A

Canada provide price signals that show where gas is needed and provide the opportunity to earn profits by expanding production facilities and transportation infrastructure to deliver the gas where needed. Real revenues from gas exports, in 2002 Canadian dollars, have increased roughly five-fold since market reforms were implemented, from Can$3.8 billion in 1986 to Can$4.2 billion in 1990 to Can$7.5 billion in 1994 to Can$9.8 billion in 1998 to Can$18.8 billion in 2002.40

Figure 28 Natural Gas Finding Costs in Canada, 1980-1990

Source: National Energy Board

Figure 29 Canadian Gas Exports Before and After Wellhead Price Deregulation

Source: National Energy Board

40 _{Natural Resources Canada (2000), pages 60-61. Statistics Canada (2003a) and (2003b). Real export revenues in 2001} were even higher (Can$26.2 billion) due to temporary price spikes associated with a tight gas market, described below.

0 20 40 60 80 100 120 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Million Cubic Metres

Gas Price Deregulation

$0 $2 $4 $6 $8 $10 $12

1989 Canadian Dollars per

Barrel Oil Equivalent

Natural gas price spikes during the winter of 2000-2001 brought average spot prices at the AECO-C hub in Alberta to nearly Can$14 per gigajoule in January 2001, more than four times the prices during the winters before and after. The National Energy Board attributes these price spikes to unusually low levels of natural gas in storage and record cold weather, as well as feedback effects from natural gas price spikes in the United States. Very low rainfall reduced the availability of hydropower in the western US, requiring additional gas-fired power generation. With cold weather and low gas storage levels in the US as well as Canada, and with constraints in California’s gas transmission network that made it difficult to deliver gas where it was needed, increased gas requirements “led to sharply increased gas prices in California which were transmitted back to British Columbia and resulted in prices at the border in the order of $20/GJ by early 2001.”41

However, Canadian gas prices soon subsided due to a combination of demand-side and supply- side factors. Demand was reduced through energy conservation by residential and commercial consumers, fuel-switching and reduced plant operations by industrial gas users, milder weather and a weakening economy. Supply was increased as record levels of gas well drilling led to a modest increase in gas production and as lower demand and higher production allowed more gas to be delivered to storage. Consequently, Canadian gas prices had declined to below US$2 per MBtu by the end of the summer of 2001 (about 80 percent of the level then at the US Henry Hub).

Figure 30 Canadian Gas Wells Drilled Compared with Average Alberta Gas Prices

Source: National Energy Board

The response of Canada’s gas market to recent price spikes can be seen as an example of the benefits of market reforms for security of supply. The NEB has noted that over the 18-month period through October 2002, “all consumers faced higher prices for natural gas” but “gas

41 _{National Energy Board (2002), pages 1-2.}

Canadian Wells Drilled Alberta Gas Price

0 2,000 4,000 6,000 8,000 10,000 12,000 1980 1982 1984 1986 1988 1990 1992 1994 19961998 2000 0 $1 $2 $3 $4 $5 $6 Can$/GJ Gas Wells Gas Price Deregulation

GAS MA R K E T RE F O R M GAS MARKET SKETCHES: CA N A D A

continued to flow and the needs of Canadians were fairly met.”42 A temporary imbalance between

supply and demand resulted in sharply higher gas prices. The higher gas prices provided clear incentives to boost gas production and limit gas use, which in turn caused prices to moderate.

GAS MARKET REGULATIO N AND INFRASTRUCTURE POLICY