# Presentation: 786546

## Natural Gas Pricing                     and Marketing

- Bangladesh Ministry of Energy and Mineral Resources
- June 2001

- James M. Todaro

- jtodaro@eia.doe.gov

## Presentation Objectives...Setting the Price

- 	**Pricing factors**
**	****Determining a price**
**	****Firm and interruptible service**
**	****Types of contracts **
**	****Various price mechanisms **

##  Where to Get Natural Gas Price Data  

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

## Typical Prices Reported in the Gas Daily

- Typical Prices Reported in the *Gas Daily*

## Other Sources of Information

- Delivery
- Pipeline internet sites
- Third party internet sites
- Commodity
- Spot Market Center Systems
- Futures Markets (NYMEX/IPE/SGT-DT/SFE)
- Third party published prices

## Many Groups Use Market Price Data  

**Marketers**
**Brokers**
**Traders**

**   **_**OPERATORS**_
**Producers**
**Pipeline**
**Storage**
**LDCs**

**Many Groups Use Market Price Data**

**Trade Press and Media**

**    **_**FINANCIAL**_
**Risk Managers**
**Investors**

**CONSUMERS**

**Information **
**Aggregators**

***Market  Players***

**Government**

## More Information Needs

_**CONSUMERS**_
**Price**
**Terms and Quality of Service**
**Alternative Fuel Prices**
**Long-term Availability**

**Spot prices**
**Futures prices**
**Supply/demand**
**forecasts**
**Market analysis**

_**MARKETERS**_
**Spot prices**
**Futures prices**
**Storage changes**
**Supply **
**Demand**
**Weather**

**Reserves**
**Flow Rates**
**Nominations**
**Receipts/Deliveries**
**Weather**
**Prices**

**More Information Needs**

**Information **
**Aggregators**

**Market  Players**

**Government**

**Trade Press and Media**

_**OPERATORS**_

_**FINANCIAL**_

## Slide 8

## 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 **

## Natural Gas Prices Can Vary Between Hubs

## Finding a Price 

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

## 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   **

## Storage Services Can Play a Critical Role Spot Market Price

## Hub or Spot Market Prices Provide

**Market for: on the spot purchases**
**Time Frame: can be short-term (1-30 days)**
**Prices: set at various locations (Hubs etc.)**

## Futures Market

**A location where trading (buy-sell) in commodities is conducted in accordance with specific rules, procedures, and guarantees.  **

## Where are they located*

***Markets Found on the Internet**

## What Effects the Natural Gas Market...

**Fundamentals**
- Supply: production, stocks, pipeline capacity, and location
- Demand: weather, application or process
- Seasonality: change of seasons, stock mgt.

**Externals**
- Legislation
- Environmental Areas
- OPEC
- News/Rumor
- New Technology

## Rigs Drilling Gas Wells Are At All-Time Highs

- Drilling Rigs 1/2/98 - 1/19/01

**Notes:**
  Rigs drilling for gas wells hit a weekly low point of 362 in mid April 1999.

  Gas rigs in operation have more than doubled since then, hitting a record of     887 as of January 19, 2001.

  The increasing number of resulting gas well completions have been expanding production in major producing States, such as Texas.  

  For the year 2000, dry gas production is estimated to have increased by 1.2%.  However, recent estimates show a greater response–fourth quarter production is up 4.4% over the same period in 1999.

## Natural Gas: 10 yrs. on NYMEX

**Natural Gas: 10 yrs. on NYMEX**
**Volume Continues to Grow  **

## Natural Gas Futures MarketParticipants Share in 2000

**2000**

## Daily Settlement Prices

## Market Terms...Strip Price   

**Strip Price: Average of the daily settlement price of the next 12 months futures contracts...**

## Strip Price Computed from the Reuters NYMEX Report

-        Month

-          Price

-       June

-         $3.738

-        July

-           3.810

-        Aug

-           3.893

-        Sept

-           3.930

-        Oct, etc.

-           3.962

**(2001)**

## Contracts Using the Futures   Strip Price  

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

## 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

## Transportation Constraints Can

**Transportation Constraints Can**
**Result in Dramatic Price Differentials**

## Recent Years Have Seen More Price Volatility 

##  Primary Goals of Most Spot                          Contracts        

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

## The Futures Market is Used Largely for Short-term Price Stability

## Natural Gas Futures Contract Closes During Bidweek

**When the bulk of trading may occur near the end of the month,e.g. March, 2001 contract closes on February 27.****     **

## Contract Price Based Other Energy Fuels 

- 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**

## 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

## Types of Natural Gas Purchase Contracts 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

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

## Various Internet Sites* Post International Prices

- www.enrononline.com
- www.dukenergy.com
- www.shellenergy.com
- www.coastalcorp.com
- http://gail.nic.in/  (Gas Authority of India Ltd.)

***Found on internet search**

## Marketing Energy Commodities and Services

- Identify potential customers
- Customers currently on or near distribution                      system(s)
- Large consumers (power generators, major manufacturing, public facilities, etc.)
- Current natural gas consumers

## ...more Marketing Practices

- Contracting for service (customer specific agreements, general use, etc.)
- Marketing,personnel,sales support...engineering etc.
- Advertising and Internet marketing

## Level of Service Offered can Effect Price 

**Firm Service**
**The customer is guaranteed delivery of the contracted volume of natural gas. For this level of service, the customer will pay a higher price.      **

**Interruptible Service**
**The customer agrees to having service interrupted if required and for this level of service will pay a lower price.m**

## 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.  **

##               Recap

**Price your Commodity (natural gas) or service at competitive prices-know your competition**
**Provide flexible levels of service**
**Know your customers and their needs**