Market Prices

Natural gas rates for Alberta’s consumers are based on gas prices established through the Natural Gas Exchange (NGX) electronic trading platform. The NGX platform brings together sellers who “offer” natural gas for sale and buyers who “bid” for natural gas purchases. Contract terms may be for the day, the weekend, rest of month or future months’ deliveries. The trading platform is very liquid and typically sells over twice the amount of natural gas that is actually being produced in Alberta every day.

The NGX trading platform is activated very early each day, with gas traders transacting numerous bids and offers every minute on various product offerings. The most frequently traded product is gas supplies priced at “Daily Index”. Daily Index is the average price published by NGX for all transactions for that day and does not reflect future prices. The daily index price, which is often quoted in the media, is commonly referred to as the “NGX Daily Index”, “AECO/NIT 2A or 5A” Average price.

Another highly traded product on NGX is the “AECO/NIT 7A” Monthly Index price. Each day, traders buy and sell natural gas for next month’s deliveries. At the end of the month, NGX determines the monthly index price for the next month using the weighted average price of all transactions contracted for that month.

The daily index price ("AECO/NIT 2A or 5A") and the monthly index price ("AECO/NIT 7A") are utilized by Alberta’s utility companies to establish their monthly gas cost recovery rates charged to their customers. Gas Alberta also utilizes these index prices, along with a number other factors, in setting its monthly gas rate.

The following charts illustrate the daily and monthly index prices of natural gas for the current and prior month.

Although natural gas for future months or years is not actively traded on the NGX trading screen, NGX does provide future market prices based on trading that takes place on the more active NYMEX trading floor. This daily reporting by NGX includes future currency values and price differences between various market locations, commonly referred to as “basis differentials”.

The following chart shows the current and future market prices for deliveries in Alberta for the next several years. The market is said to be in “contango” if futures (or forward prices) are higher than spot prices. Conversely, the market is showing “backwardation” if futures are trading below the spot price. This chart also indicates that winter prices are typically higher than summer prices due to colder seasonal temperatures and higher heating demands.