CHAPTER 10 THE BASICS OF GAS FUTURES

• Jurisdiction: United States

Natural Gas Transportation and Marketing
(2001)
CHAPTER 10
THE BASICS OF GAS FUTURES
Arthur Gelber
Gelber & Associates Corp.
Houston, Texas

[Page 10-1]

OUTLINE

I. Basics of Natural Gas Futures

A. "I have gas for sale"

B. Contract Specs

1. Contract size: 300 MMBtu/day

2. Henry Hub

3. Firm

4. Margin

II. Gas is Gas

A. Broad price movement is consistent in all market and supply areas.

B. Prices rise and fall by differing amounts in different areas, but these differences are less than the general movement of gas prices.

C. Gas has intense seasonality

D. Gas values at different locations have somewhat different prices.

E. Do you know why?

III. Key Concepts

A. Convergence

1. Convergence is the movement of cash price and fut5ures price exactly equal at the delivery location, upon delivery (net all costs)

IV. The Basis

A. Prices go up and down together. Relative value changes somewhat but much less than the fundamental price of gas.

B. This is called "Basis", a futures term.

C. The Basis is Physical gas minus futures.

D. The Basis is very important regarding the ability to link your gas production with proper usage of the futures market.

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NATURAL GAS FUTURES CONTRACT SPECIFICATIONS

Contract Unit:	10,000 MMBtu (or 10 Mcf per month or 300 Mcf/day)
Prices Quotations:	Dollars and cents per MMBtu (i.e. $2.105/MMBtu)
Minimum Price Change:	$.001 per MMBtu ($10 per Contract)
Maximum Daily Limit:	$0.10 per MMBtu on all contracts except the front two. The front two have consecutive 75 cent daily limits with a one hour mandatory cessation.
Trading Months:	Thiry consecutive months, then 1 month per half year out 3 years.
Daily Trading Hours:	Daily trading between 9:00am and 2:10pm CST; ACCESS trading between 3:00pm and 6:00pm CST.
Last Trading Day:	Trading terminates at 2:10pm CST five business days prior to the first calendar day of the delivery month.
Delivery:	Sabine Pipeline Company's Henry Hub in Louisiana. Seller is responsible for the movement of gas through the Hub, and buyer, from the Hub. The $.03/MMBty Hub fee will be paid by the seller.
Delivery Period:	Delivery shall take place ratably no earlier than the first calendar day of the delivery month and shall be completed no later than the last calendar day of the delivery month.
Payment"	Buyer shall pay the seller by wire transfer by 12:00 noon by the 20th calendar day of the month following the delivery month.

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