The Energy Regulation and Markets Review - Stikeman Elliott

Canada
delivery same day, or at some point in the future. A price set today for delivery at some
later date is referred to as a ‘future’ price. Spot and future prices are set through the
interaction of supply and demand through trading platforms such as the Natural Gas
Exchange in Alberta or the New York Mercantile Exchange in the United States.
Canada is a participant in the global oil market in which buyers and sellers trade
volumes, mostly on the basis of short-term contracts. It is this interaction that sets the
world price of oil. The Canadian and US markets for oil are fully integrated. Canadian
crude oil production is connected to the North American oil market through a network
of pipelines, tankers, rail and trucks. Although Canada is the sixth-largest producer in
the world, it produces only about 4 per cent of total daily production, so it does not have
a major influence on the world price of oil. Currently, Canada exports two-thirds of the
oil it produces each day, but also imports half of the oil it needs on a daily basis. Oil is
produced and exported from Western Canada and Newfoundland, while the refining
industry in Atlantic Canada, Quebec and part of Ontario relies upon imported crude oil
for feedstocks. Close to 100 per cent of Canadian crude oil is shipped to the United States,
to which Canada is the largest exporter of crude oil. Canada’s two major benchmarks
for crude oil are the Western Canada Select and Edmonton Par. As the United States is
Canada’s main export market, typically Canadian crude oil is priced relative to the crude
oil benchmark West Texas Intermediate, at Cushing, Oklahoma. Crude oil, like natural
gas, is bought and sold through a variety of contract types, including ‘spot’ transactions.
As noted above, there is currently a disparity between the price paid for Canadian oil
production and the world price, such that Canadian oil production is increasingly
looking for markets outside of the United States.
ii Energy market rules and regulation
Power and gas markets are for the most part separately regulated, and power is much
more heavily regulated. In Ontario and Alberta, there are market rules administered by
the respective independent system operators that govern and regulate the wholesale spot
market and related markets. These address, among other things, registration requirements,
reliability standards, prudential obligations, bid or offer protocols, dispatch, settlement,
compliance, penalties and dispute resolution. Retail markets are governed by various
consumer protection legislation or regulations and energy board rules and codes. These
typically impose more onerous requirements on sales to residential or other small-volume
consumers.
With regards to the gas market, wholesale trading is not governed by any pricing
regulations or rules in Canada. In the case of the retail gas market, like electricity, it is
also governed by various consumer protection statutes, regulations and energy board
codes and rules.
Some provinces in Canada have commodity futures legislation that regulates
trading and advising in commodity futures contracts and commodity futures options.
Moreover, in other provinces the definition of ‘security’ in securities legislation includes
over-the-counter derivative transactions (i.e., swap contracts) or physical transactions
(including to make or take future delivery of natural gas). As a result, these types of
financial transactions and physical transactions are governed by dealer registration and
prospectus filing requirements unless the transaction fits within certain exemptions. A
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