# Presentation: 539443

## Natural Gas Spot Market

- Setting Natural Gas Prices and Supply
- Bangladesh Ministry of Energy and Mineral Resources

- James Todaro, DOE/EIA

**jtodaro@eia.doe.gov**

## Material to Be Covered

**Spot market elements**
**Differs from the  Futures Market but used together at times**
**Various contract length and type**
** ****Price discovery tools**

## Natural Gas Market Development

## Spot Transaction: A Physical Market Sale

**Prod./Mktr.**

**Elec.Utility**

**Power Plant**

## Spot Market...What is it ? 

- Market for: on the spot purchases
- Time Frame: can be short-term (1-30 days)
- Prices: set at various locations (Hubs etc.)
- Transportation: buyer (may) need(s) own

## Spot and Futures Prices at Henry Hub, Follow Same Pattern 

## Slide 7

## Storage Services Can Play a Critical Role Spot Market

## Some of the Services Provided at Market Hubs

**Storage: Hold gas for buyer **
**Wheeling: Transportation interconnect**
**Gas Sales: At posted prices, spot sales**
**Electronic Trading: Web based sales **

## More Hub Services...

**Administrative: Billing, transfers, credit**
** ****Compression: To maintain system**
** ****Hub to Hub: Transfers to other Hubs**

## Natural Gas Prices Can Vary Between Hubs

## Sales at the Wellhead, Before Gas Goes to Hubs

**Sales Contracts Between Producers and:**
**End Users: Industrials other large users**
**LDC’s: for their customers**
**Marketers: Who then may sell to end users and LDC’s**
**Pipelines: to maintain system operations   **

##       Where to Get Daily         Spot Price Data  

**Industry Publications**
**Various Websites**
**Reuters Services**

## Typical Prices Reported in the Gas Daily

- Typical Prices Reported in the *Gas Daily*

## Finding a Price 

**Some contracts are based on published spot prices at 1 Hub**
**Or average of 2 or 3 Hub Market  Center prices**

##  Primary Goals of Most Spot                          Contracts        

**Secure supply over required time period **
**Protection from price rise**

## Recent Years Have Seen More Price Volatility 

## Other Types of Contract Used

**Mid-term:**12 to 18 Months
**Long-term:** over18 months
**Market basket:** Price moves based on cost of other fuels, e.g. fuel oil ($ per MMBtu ), term varies
- Along with short-term, all are contracts on the physical market

## Examples of Market Basket Variables* 

- Price of Heating oil in New York Harbor
- Natural Gas In Louisiana
- Natural Gas in Texas

- $6.10 per MMBtu
- $5.91per MMBtu
- $5.83per MMBtu

- *Feb. 12, 2001

## Possible Spot Market Contract Based Variables

- A. Htg. oil + TX NG /2 + shipping* to NYC
- B. TX NG +LA NG/2 + shipping to NYC
- C. Htg. oil +  midpt. (LA+TX NG) + shipping

- A. $6.45 per MMBtu
- B. $6.35 per MMBtu
- C. $6.47 per MMBtu

*******shipping=$0.48/ MMBtu**

## Contracts Using the Futures   Strip Price  

- Price: 12 month futures average
- Term: typically may be 12 Months

## Using 12-Month Strip to Contract for Gas Supply

- (2001)

## Setting Prices Closer to the End User...at Citygate 

- Citygate is the point on the pipeline system where natural gas is delivered to the LDC, e.g. Boston, Chicago, New York,  etc.
- End Users without transp. capacity can set a spot price at this point.

## Citygate prices in Gas Daily

## Spot Market Recap

**Physical market, term lengths vary**
**Priced at various locations...Mkt. Hubs**
**Contract price can be set using; NYMEX, other fuels, point of delivery, etc.  **