In an effort to better serve its customers, CME Group is introducing three new natural gas futures contracts physically delivered at Pine Prairie Energy Center (PPEC) in Evangeline Parish, LA, which is owned by PAA Natural Gas Storage LP.
The contracts will be traded on the New York Mercantile Exchange (Nymex) floor, electronically through CME Globex and available for clearing services through CME ClearPort. The contracts will go into effect on Feb. 6 for trading on Feb. 7, and will be listed with, and subject to, the rules and regulations of Nymex.
The PPEC delivered natural gas futures contracts are an extension of CME Group's natural gas benchmark product offering by providing customers shorter-term contracts including: daily, balance-of-month and monthly contracts all with backstopped delivery. These contracts are sized at 2,500 MMBtu/d during the delivery period and priced at a minimum increment of $0.0025/MMBtu. PPEC said it has received Federal Energy Regulatory Commission approval to make modifications to the PPEC Gas Tariff allowing for new services to accommodate these contracts.
"Our new Pine Prairie Energy Center delivered natural gas contracts were developed to meet the fast-moving, short-term and long-term baseload needs in today's natural gas marketplace," said Joe Raia, managing director, Energy & Metals Products, for CME Group.
The three PPEC futures contracts to be listed are PPEC Physically Delivered Natural Gas Daily/Weekend Futures (PPD), PPEC Physically Delivered Natural Gas BALMO Futures (PPB) and PPEC Physically Delivered Natural Gas Monthly Futures (PPM). These contracts provide the dual benefit of termination through backstopped physical delivery and security of an exchange-cleared transaction.
"This is a new direction for us on the shorter-term physical gas market," Raia told NGI. "Even though the Henry Hub contract is physical, this is kind of an evolution that is complimentary to the Henry Hub and all of the other contracts we have in the natural gas market."
The physical delivery point for these contracts will be the PPEC, which is strategically located 50 miles from Henry Hub and has nine interconnects to eight major pipelines that service the Gulf Coast, Midwest, Northeast and Southeast markets.
Despite the proximity, Raia said he believes there is a market for the new contracts because they are different than the Henry Hub. "The Pine Prairie offerings are shorter-term. They are balance-of-the-month and day-ahead. These contracts will allow traders to hedge some risk in the shorter-term markets, which is the reason that we launched it. The trading community did ask us pretty specifically to get involved in this and were very happy with which contract we decided to come out with first."
Raia said CME is currently watching other facilities "closely" to see "what our customers want. If there is demand for [more locations], we'll get them out the door," he added.
Todd Brown, vice president of Optimization for PNG, said, "We believe the combination of CME Group's resources with PPEC's operational capabilities will provide natural gas industry participants with a recognized, flexible and scalable physical balancing location. These new contracts fill an important need and should attract additional participants and increase an already healthy level of hub services volume at Pine Prairie. The increased liquidity should benefit new and existing customers."
Last fall PAA Natural Gas Storage filed with FERC an application to expand PPEC by adding 32 Bcf of working gas storage capacity, including two new 12 Bcf caverns and the expansion of permitted capacity for caverns two through five to 12 Bcf from 10 Bcf each (see Daily GPI, Oct. 6, 2010).
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