Yet another gas futures contract could be coming down the pipe,this time in Chicago where a bounty of Canadian gas expected fromNorthern Border and Alliance Pipeline has Peoples Gas Light &ampCoke thinking its system could host the contract’s delivery point.

“We feel that Chicago’s level of trading activity will greatlyincrease,” said Raulie de Lara, who confirmed meeting recently withabout a dozen marketers and producers to talk about a futurescontract. “We are coming off of the meeting with some positivefeedback. There is no imminent contract that’s coming up in thenext few weeks. The exchanges will look at the liquidity issue andthe level of interest or volume of trading expected before theywould come up with a Chicago futures contract.” Except for theHenry Hub, trading at other gas futures contracts has beenrelatively light, prompting complaints over lack of liquidity.

Nevertheless, de Lara said it’s just a matter of time beforeChicago has its own gas futures contract, and Peoples is the bestsystem to host its delivery because it is the only Chicago huboffering firm services. While not trying to disparage the Nicor Gassystem, de Lara said it is not a header system like Peoples.Peoples has the double loop Mahomet Pipeline, which is connected tothe Manlove storage field in Champagne, IL. Mahomet is connected tomajor interstates Natural Gas Pipeline of America (NGPL), ANRPipeline, Trunkline Gas, Northern Border, and Midwestern GasTransmission, as well as the Alliance project. The Peoples systemalso interconnects with Nicor. de Lara said the Peoples systemcould 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 amarket area, more of the contractsshould come to physical delivery.

“It’s difficult to trade basis for more than two or three yearsdown the road, so the trading that is expected for the Chicagofutures contract will play not only a greater role in taking careof the additional Canadian inputs but also the power projects thatare being developed in the Midwest.” Power project developersshould welcome the hedging tool of a Chicago contract, de Larasaid. Hub fees at Peoples would be competitive, de Lara said. Itcosts about 3 cents to move gas across the Henry Hub.

Ted Lenart, Nicor’s general manager of supply ventures, concededthe Nicor hub does not offer firm services. “So I guess it dependson 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 virtueof the 250 Bcf of end user gas that’s bought there on an annualbasis. If the futures contract requires hub services to wheel thegas to other pipelines, then clearly that’s where Nicor would fallshort, but if the contract were used to just sell into the liquidNicor citygate, then Nicor would probably work real well.”

The New York Mercantile Exchange did not return a call forcomment on the prospect of a Chicago futures contract. A KansasCity Board of Trade spokeswoman said the exchange is always lookingfor different contracts, “but we don’t have anything specific tomake any announcements on.” Similarly, a spokeswoman with theChicago Board of Trade, which does not currently have a gas futurescontract but does have electricity contracts, said the exchange is”exploring other opportunities, but we have no announcements aboutnew contracts at this time.”

de Lara said the next meetings on the topic likely would bebetween the exchanges and marketers/producers interested inestablishing a contract. “There’s no reason why basis should becalculated off of Henry Hub when the center of consumption isreally in the Midwest for the whole North American continent.Chicago is more suitable here for basis to be calculated off of.”

Joe Fisher, Houston

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