Alberta natural gas changes hands at a fast clip
Gas trading has evolved into digital forms, leaving behind the noisy exchange pits where brokers used to haggle in person
As prices and drilling gyrate, Canada’s natural gas bazaar will keep on humming with deals known as NIT, short for Nova Inventory Transfer. The market – already North America’s biggest gas trading hub, hosted by TransCanada Corp.’s Alberta pipeline grid and the NGX energy unit of TMX Group Inc., owner of the Toronto Stock Exchange – is poised to add growing British Columbia supplies.
“On average, nearly 10.6 billion cubic feet per day was physically transported on the Alberta system in 2008 while NIT transactions on average exceeded 60 billion cubic feet per day. In other words, each molecule of natural gas within the NIT market was traded approximately six times before it was physically delivered off the system,” TransCanada subsidiary Nova Gas Transmission Ltd. reports in a construction application to the National Energy Board for the first of two planned B.C. extensions of its Alberta pipeline network. The additions will put B.C. production on the NIT web.
As a shopping center for gas as a physical commodity, the Canadian market differs from the more famous NYMEX or New York Mercantile Exchange, the world capital of paper energy trading with derivative futures contracts. The NIT market includes 23,700 kilometers of pipelines, 1,000 receipt points where gas enters the web and 200 exits onto local, national and international transmission systems. For market participants that want to stash gas away for sale or use later, the Alberta hub is connected to storage facilities for 320 billion cubic feet or enough gas to satisfy all North American demand for nearly five days.
Gas trading has evolved into digital forms, leaving behind the noisy exchange pits where brokers used to haggle in person, on both NYMEX and NIT. But NYMEX is a playground for financial institutions moving money around among stocks, bonds, currencies and commodities. NIT is the arena for suppliers, users and merchants of tangible energy. The paper changing hands on the Canadian gas exchange is legal title to the physical commodity.
Participants range from production firms to home-heating utilities, power companies and energy retailers across Canada and the United States. NIT prides itself on being flexible and open to all needs. Nova rents out pipeline capacity anywhere for as little as one day or for years.
On the Canadian gas hub, some seek the highest possible prices. Others prowl for the best available bargains. The result is the intense jockeying for advantage described by Nova in its NEB application. The transaction volume on NIT approaches total North American natural gas production capacity of about 70 billion cubic feet per day.
The system provides “significant flexibility to manage natural gas portfolios,” Nova says. Suppliers and buyers alike will keep on needing the special trading arena for the cleanest fossil fuel, suggests the NEB’s latest long range energy markets forecast.
Oil and natural gas have broken with their past as competing fuels and will likely stay separately traded for the foreseeable future, the board reports. On price yardsticks that compare the energy content of the two fuels, gas currently goes for deep discounts. Global supply anxieties and political tensions that inflate oil markets have little or no effect on gas. Big questions that only the future can answer include whether environmental policies will bring energy values into balance by generating a green premium for cleaner burning gas.
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