Peoples Sees Gas Futures In Chicago's Future
Yet another gas futures contract could be coming down the pipe,
this time in Chicago where a bounty of Canadian gas expected from
Northern Border and Alliance Pipeline has Peoples Gas Light &
Coke thinking its system could host the contract's delivery point.
"We feel that Chicago's level of trading activity will greatly
increase," said Raulie de Lara, who confirmed meeting recently with
about a dozen marketers and producers to talk about a futures
contract. "We are coming off of the meeting with some positive
feedback. There is no imminent contract that's coming up in the
next few weeks. The exchanges will look at the liquidity issue and
the level of interest or volume of trading expected before they
would come up with a Chicago futures contract." Except for the
Henry Hub, trading at other gas futures contracts has been
relatively light, prompting complaints over lack of liquidity.
Nevertheless, de Lara said it's just a matter of time before
Chicago has its own gas futures contract, and Peoples is the best
system to host its delivery because it is the only Chicago hub
offering firm services. While not trying to disparage the Nicor Gas
system, de Lara said it is not a header system like Peoples.
Peoples has the double loop Mahomet Pipeline, which is connected to
the Manlove storage field in Champagne, IL. Mahomet is connected to
major interstates Natural Gas Pipeline of America (NGPL), ANR
Pipeline, Trunkline Gas, Northern Border, and Midwestern Gas
Transmission, as well as the Alliance project. The Peoples system
also interconnects with Nicor. de Lara said the Peoples system
could become Chicago's answer to the Henry Hub's Sabine Pipeline.
At the Henry Hub, about 3% of volumes traded come to delivery,
de Lara said. "Chicago being a market area, more of the contracts
should come to physical delivery.
"It's difficult to trade basis for more than two or three years
down the road, so the trading that is expected for the Chicago
futures contract will play not only a greater role in taking care
of the additional Canadian inputs but also the power projects that
are being developed in the Midwest." Power project developers
should welcome the hedging tool of a Chicago contract, de Lara
said. Hub fees at Peoples would be competitive, de Lara said. It
costs about 3 cents to move gas across the Henry Hub.
Ted Lenart, Nicor's general manager of supply ventures, conceded
the Nicor hub does not offer firm services. "So I guess it depends
on what you're looking at doing. While we don't offer firm service,
the gate at Nicor is a very liquid gate, and it's liquid by virtue
of the 250 Bcf of end user gas that's bought there on an annual
basis. If the futures contract requires hub services to wheel the
gas to other pipelines, then clearly that's where Nicor would fall
short, but if the contract were used to just sell into the liquid
Nicor citygate, then Nicor would probably work real well."
The New York Mercantile Exchange did not return a call for
comment on the prospect of a Chicago futures contract. A Kansas
City Board of Trade spokeswoman said the exchange is always looking
for different contracts, "but we don't have anything specific to
make any announcements on." Similarly, a spokeswoman with the
Chicago Board of Trade, which does not currently have a gas futures
contract but does have electricity contracts, said the exchange is
"exploring other opportunities, but we have no announcements about
new contracts at this time."
de Lara said the next meetings on the topic likely would be
between the exchanges and marketers/producers interested in
establishing a contract. "There's no reason why basis should be
calculated off of Henry Hub when the center of consumption is
really in the Midwest for the whole North American continent.
Chicago is more suitable here for basis to be calculated off of."
Joe Fisher, Houston