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NGSA Sees Diverse, Competitive Gas Market in Form 552 Data

The large natural gas suppliers represented by the Natural Gas Supply Association (NGSA) used indexed prices for 66% of all their next-day volumes and for 87% of all their next-month volumes, according to reports on 2008 transactions filed earlier this month with FERC in its Form 552 market survey.

"A look at the reports filed by NGSA's members showed that large natural gas suppliers entered into many types of transactions in the physical markets last year and that the individual companies differed from one another in how they chose to diversify their transactions," said R. Skip Horvath, NGSA president. "This diversification is indicative of a well functioning, competitive natural gas market."

NGSA's analysis showed the highest number of indexed next-day transactions for a member company was 96%, while the lowest number indexed by a single company was 62%. For next-month volumes the highest number indexed by a single company was 100% and the lowest number indexed was 74%.

"The number of indexed-price volumes shows the NGSA market participants' confidence in the price indices and overall market transparency," Horvath said.

NGSA member company reports showed that 97% of their fixed-price volumes on Form 552 that were eligible for inclusion in index formation were reported to price publishers, indicating a high level of voluntary participation in price discovery.

"This high level of reporting, coupled with the fixed-price reporting of other market participants, validates our confidence in the price discovery process and helps to underscore the strength, breadth and diversity of the physical natural gas market. The sheer volume of reports filed and market participants' robust use of both fixed and indexed-price volumes also confirm that this is a market with numerous participants of all sizes and portfolio types and many kinds of transactions," Horvath said.

NGI's own analysis of the individual form 552 filings made by buyers and sellers of physical natural gas showed that the top 20 largest traders accounted for more than 52 Tcf, a hefty 58% of the 90 Tcf in total volume of reportable transactions in 2008 (see NGI, July 6). The data also reveal a high volume of index deals versus fixed-price deals consummated by the top 20 marketers (see NGI, June 29). Cumulatively, the top 20 traders indicated that they indexed roughly 56% of their next-day trading volumes and 87% of their next-month or bidweek volumes.

In its Order No. 704, issued initially in December 2007, the Federal Energy Regulatory Commission (FERC) said one of the goals of Form 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."

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