On A Horrendous Day For The Equity Market, WTI And Natural Gas "Maintaining" -- September 13, 2022

The Far Side: link here.

Active rigs: 44.

WTI: $87.32. On a really bad day for equities, WTI is down only 46 cents. Later, down only sixteen cents.

Natural gas: $8.297.

Wednesday, September 14, 2022: 23 for the month, 73 for the quarter, 412 for the year

• 37693, conf, BR, Lone Beaver 1-1-17TFH, North Fork, no production data,
• 29782, conf, Zavanna, Galloway 18-30 2H, Stockyard Creek, no production data,
  

Tuesday, September 13, 2022: 21 for the month, 71 for the quarter, 410 for the year

• 37694, loc/drl, BR, Lone Beaver 2-1-17TFH, North Fork, no production data,
  

RBN Energy: the process, quirks and idiosyncrasies of US natural gas pricing, part 3.

The U.S. natural gas market is one of the most transparent, liquid and efficient commodity markets in the world. Physical trading is anchored by hundreds of thousands of miles of gathering, transmission and distribution pipelines, and well over 100 distinct trading locations across North America. The dynamic physical market is matched by the equally vigorous CME/NYMEX Henry Hub natural gas futures market. Then, there are the forward basis markets — futures contracts for regional physical gas hubs. These pricing mechanisms play related but distinct roles in the U.S. gas market, based on when and how they are traded, their respective settlement or delivery periods, and how they are used by market participants. In today’s RBN blog, we continue a series on natural gas pricing mechanisms, this time with a focus on the futures and forwards markets.

Earlier, we took a trip in the way-back machine to see how these pricing systems — including the processes for price discovery and transparency — even came to be in the U.S. We recounted the shift of physical gas trading from a primitive market with long-term deals done only between producers and pipeline owners at regulated prices to a burgeoning spot market with no price controls and “open access” on pipelines for others besides pipeline owners. That era of decontrol and restructuring of the pipeline industry was followed by a period of minimal regulatory oversight in which independent publishers — price reporting agencies (PRAs) — took on the role of carrying out price discovery and dissemination. That is, until the Enron debacle in the early 2000s, which forced a hard look at manipulation issues that influenced published price indices and brought the Federal Energy Regulatory Commission (FERC) back into the fold.

Specifically, FERC put in place strict price-reporting and ethical guidelines for those companies that chose to report trades to PRAs. Additionally, market participants who buy or sell an annual minimum of 2.2 trillion British thermal units (TBtu) in the physical day-ahead or month-ahead market — i.e., the kind of transactions that either impact or are impacted by PRA indices — also were required to submit Form 552 each year, reporting all purchases and sales of gas by quantity and type of pricing mechanism. That resulted in the robust Form 552 dataset, including volumes for fixed-price deals (negotiated prices between counterparties) and index-price deals (transactions based on a PRA-published index) for next-day and next-month delivery.

PRAs and published price indices remain a mainstay in the role of transaction reporting and price discovery, and in recent decades, electronic trading platform Intercontinental Exchange (ICE) has also become ensconced in the gas market, providing a real-time mechanism for physical and financial transactions, which are then summarized in an end-of-day report and incorporated into the PRA price indices.

Then, we took a closer look at the pricing instruments for trading physical gas at the more than 100 distinct trading locations across North America. We focused on the three most common markets: (a) the daily physical spot market in which natural gas is bought and sold for delivery the next day, (b) the monthly spot market where gas is sold on monthly contracts for the upcoming month during a period called bidweek, and (c) long-term contracts where gas supply is contracted under seasonal, annual or multi-year deals.

Next, we turn our focus to the primary financial, forward-looking pricing instruments, starting with the terminology. Trading for the prompt month or more than one month into the future also occurs in the “forwards” or “futures” market. In the North American natural gas market, the term “futures” is usually reserved for the standardized CME/NYMEX contract at the Henry Hub in Louisiana, the benchmark location for the North American gas market, while the term “forwards” usually refers to over-the-counter (OTC) deals done for gas in the other price locations. (Technically, any price for a delivery date in the future is a forward.)