The Committee of Chief Risk Officers (CCRO), pointing to gaps in gas price reporting during the March bidweek, has urged energy buyers and sellers to continue to submit data on transactions to “index developers” during the transition time until its complex and detailed new rules can be put in place. (Note NGI has a material interest in this subject).

The CCRO also scheduled a workshop in Houston April 15 for data providers and developers to learn more about the CCRO’s proposed rules and how to achieve a transition. “The committee expressed concern over the recent decline in the reporting of pricing data and the resulting risks that buyers and sellers face by relying on indices that might not reflect market-clearing prices. Meanwhile, a survey of CCRO members indicated that the scarcity of data should be ending soon.” The organization claims its members market about half the natural gas in the United States.

While the CCRO appeared to blame a lack of reporting for less data being available in the March bidweek, the more likely reason was that more trades were indexed and there were fewer fixed price transactions due to the very wide price spread that month, according to reports gathered by NGI. (NGI does not use indexed trades in its price survey) After seeing a fall-off in trading and reporting in the last quarter of 2002, NGI noted successive increases in both trading and reporting in January and February of this year. The volume of March trading regressed because of the extreme volatility, but is expected to return to an upward trend in April.

The March bidweek, which occurred during an onslaught of late winter storms, curtailed storage deliveries and dire warnings from forecasters of more to come, was characterized by record-setting volatility and very wide price ranges. Nymex futures started off the bidweek hitting an all-time high of $11.899. Traders told NGI‘s price journalists that buyers and sellers were indexing their transactions rather than take the risk of being several dollars out of the market on their negotiated fixed price transactions.

On Feb. 27 NGI’s Daily Gas Price Index reported, “the late-February “price craziness” is being translated into March, according to one source. “The problem with March is that nobody is willing to do fixed-price or even basis trading now. Everyone was doing index. The prevailing mentality is that it is better to be 10 cents out of the market than $2.00” (see Daily GPI Feb. 27 ).

The tendency to index is a feature of a highly uncertain or volatile market. NGI saw the same trend in the last quarter of 2002 when many of the major marketers were leaving the scene and the price indices themselves were under fire. During that time the drop in the number of fixed price transactions reported was in part due to fewer trades overall and in part to indexing by those remaining in the market. Despite the fact that the indices were under fire, market participants chose to index rather than strike out on their own.

NGI has encouraged its sources to do more fixed price transactions and made that recommendation the main point in the proposals it made to the CCRO in December, advising that any major changes be put off until the market recovered. That appears now to be the thrust of the group’s current message.

“Consumers, our industry and the economy at large need these indices to affirm they’re buying and selling energy at market-clearing prices,” said Jesco von Kistowski, a member of the CCRO board of directors and COO of Houston-based RWE Trading Americas.

“Companies that submit data should provide transaction details for each transaction at the level required by the index publisher, including price, volume and appropriate delivery information such as flow dates and location, as soon as possible,” CCRO’s transitional guidelines state. The guidelines do not apply to counterparty and buy-sell data, which should be submitted only once the required organizational, technical and legal safeguards are in place. CCRO noted completing these safeguards is likely to be “time-consuming.”

The transitional guidelines and the full Feb. 27 standards are available at Details about the workshop will be on the website on or soon after April 1, CCRO said.

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