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LDC Survey Shows Shift in Supply Contracting

LDC Survey Shows Shift in Supply Contracting

A survey released yesterday by the American Gas Association of 69 gas local distribution companies shows LDCs last winter made a shift to more short-term gas supply contracts. The percentage of peak-day gas purchases made under long-term supply agreements declined to 35% in winter 1998-99 from 38% in winter 1997-98, and the percentage of LDCs with more than half of their peak-day purchases under long-term arrangements dropped to 38% from 47% during the previous winter. Spot market purchases accounted for 10% of peak-day supplies on average compared to only 5% during the prior winter, AGA said. Storage deliveries comprised 41% of peak-day gas supplies.

AGA's Chris McGill noted survey readers should keep in mind the survey sample is much larger this year, with responding LDCs accounting for a total peak-day gas send-out of 40 million Dth compared to a survey sample representing about half that during the previous year. In addition, the results should be weighed keeping in mind that last winter had 9% fewer heating degree days (October through March) than normal compared to 8% fewer than normal during winter 1997-98. Gas prices last winter also were significantly lower than during the prior winter.

Despite the warmth, about one in six survey respondents said they experienced at least some minimal loss of firm supplies at the citygate sometime during the winter. Forty two of the 69 respondents also said operational flow orders were declared on at least one of the pipelines serving their system.

In the area of gas pricing, the findings show a continuing heavy reliance on bidweek data. Of the 56 companies purchasing mid-term supplies (greater than one month but less than a year), 90% utilized first-of-the-month pricing for a portion of their supplies, 44% used daily spot prices, 23% used fixed multi-month pricing and 11% used weekly pricing mechanisms.

The survey also found a heavy reliance on supply hedging. About 75% of the LDC respondents are relying on financial instruments to hedge a portion of their supplies, and of those, 34% hedge more than half their gas purchases. Fixed-price contracts were the most widely used tool. And more LDCs used options contracts rather than gas futures contracts to hedge their supplies. Twenty-one percent of the survey participants utilized options while only 11% used futures.

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