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FERC Form 552 Data Shows Heavy Trading Volumes, Indexing

By late last week, 544 companies, both buyers and sellers of natural gas, had for the first time reported their annual spot market purchases and sales on FERC's new Form 552, which is intended to bring price transparency to the natural gas market. The results will inform the Commission as to the relative use of fixed price versus indexed transactions in the daily and monthly market. Additional company submissions may still appear before the filing deadline July 1.

A quick look at the data compiled from these early Federal Energy Regulatory Commission (FERC) submissions by NGI reveals that there was a heavy concentration of volume traded by the top producers/marketers in the U.S. and that index deals accounted for a majority of these volumes. Specifically, the top four marketers to report, BP, ConocoPhillips, Shell and Chevron, tallied an impressive cumulative volume of 12.1 Tcf in purchases and 13.6 Tcf in sales for 2008.

The hefty volumes for the top four accounted for roughly one-quarter of the overall volume reported by the 526 companies (NGI's tallies exclude the 18 smaller companies that reported apparently erroneous, order-of-magnitude higher volumes than the largest marketers), which had filed with the Commission as of last Thursday. The overall sales were 53.4 Tcf, while purchases were 51.4 Tcf. As for the percentage indexed, which has been the $64,000 question for the FERC ever since the trading scandals of the early 2000s, the early numbers for the top four are not terribly surprising either.

Cumulatively, the top four traders indicated that they indexed roughly 65% of their next-day trading volumes and 87% of their next-month or bidweek volumes. One revelation from the early data was the very low volume of basis deal trading, that is transactions pegged to the Nymex futures, reported by these traders. Specifically, the top four reported slightly more than 1 Tcf in annual basis trading volume, just a fraction of the nearly 26 Tcf they bought and sold in total.

In its Order No. 704, issued initially in December 2007, FERC said one of the goals of Form No. 552 is to allow the Commission to "not only understand the transactions used to formulate price indices; it is to understand how influential price indices are in the overall transacting of natural gas in U.S. wholesale markets." The order stems from transparency provisions included in the Energy Policy Act of 2005, which directed the Commission "to facilitate price transparency in markets for the sale or transportation of physical natural gas in interstate commerce."

The data collected is not an attempt to measure production, since a single package of gas may go through multiple transactions. Nor will it measure the entire buy-sell market, since it asks only for fixed price spot market transactions for physical gas that meet the restrictive criteria set out by index publishers in their day-ahead and monthly price surveys, and for almost all transactions that are indexed to the results of the surveys (NGI is an index publisher).

No futures or affiliate transactions were to be reported in either category, nor were sales to retail consumers under a state-approved bundled tariff. In Order 704B FERC clarified that cash-out, balancing and in-kind transactions are reportable on Form No. 552 if they rely on, contribute to, or could contribute to a price index.

FERC had extended the deadline for the filings from May 1 to July 1 when some market participants and representative groups said they were struggling to come up with the required information for 2008 since their books are not set up to break out their transactions in the prescribed manner. Marketers who regularly report to the publishers' price surveys would have less trouble since their administrative systems are set to separate the different types of transactions. For instance, only arms-length transactions occurring during set time periods are used in the daily incremental and monthly baseload or bidweek surveys.

Companies did not have to fill out volume information if their 2008 reportable natural gas purchases and sales added up to less than 2.2 million MMBtu or 2 TBtu. They, nevertheless, would have to file the Form 552 if their sales or purchase came under a blanket certificate, but they could leave out volume information if they were under the de minimis limit.

Veteran regulatory attorney Dena Wiggins, a partner at Sutherland, was advising her clients to send in forms with their names on them because the blanket certificate requirement is pretty much all inclusive. It means, for instance, that if one of an end user's packages of gas came under a blanket certificate anywhere in the daisy chain of transactions between wellhead and burnertip, it would be deemed a blanket certificate transaction. Since it might be difficult to tell if a blanket certificate sale were involved somewhere along the line, it would be safer to fill out the form.

Wiggins, who is general counsel to the Process Gas Consumers organization, said that regarding instructions on other parts of the form, FERC staff had suggested she contact the publishers, which she did. She also said FERC staff had told her there would be a safe harbor for unintentional errors in the first year of the 552 survey.

Both NGI and Platts make their survey methodologies accessible on their websites. And NGI staff is always available to answer any questions regarding contributing to its surveys.

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