If you’ve gotten the feeling that someone is watching you, you’re not paranoid. The spotlight is on natural gas prices and the lights are only going to get brighter.

Your industry representatives — the leaders of all segments of the natural gas industry and customers — labored hard to produce a consensus. Price publishers agreed, and federal regulators last week granted a window of opportunity through the coming winter for us all to prove the competitive natural gas market can thrive and function efficiently with the current voluntary, private and confidential price reporting and index-setting system (see Daily GPI, June 25 & June 26).

This is in the face of a national supply-demand imbalance that promises to test the market as it has never been tested before. Pricing will be critical in its primary function of allocating supply to its highest uses. You can believe that our performance will be closely watched from all sides.

The primary watchdog will be the Federal Energy Regulatory Commission, which made clear last week in granting this window of opportunity that this is a temporary reprieve from the prospect of heavier-handed regulation in the form of mandated collection of price information by a third party agency supervised by FERC. A wide array of organizations have offered to set up an alternate data collection and price supervision agency and FERC has their phone numbers. Your industry representatives and the price publishers have promised results. And the Commission will be watching closely for those results.

FERC Chairman Pat Wood encouraged market participants to “get back in the reporting business so we get more of the volumes that are actually being transacted reported to existing price collectors.” And he added the carrot of a safe harbor provision, calling on industry reps to gather at FERC July 2 to help write it.

While holding off on a mandate, the Commission proposed amendments to blanket certificates that would require those who report prices to publications to do so fully and accurately. If enacted, it also would require certificate holders to report to the Commission as to whether they participate in the price surveys or not, “so we can find out why they’re not,” said Wood. The amendments are open for comment, but commissioners and staff made clear this was a short-term carrot and stick approach, and that longer term the rules could change if the voluntary system does not work.

While a mandatory price collection system to a government-supervised entity may seem better to some, it would likely drive to the sidelines those market participants who do not want their transactions revealed, resulting in an inefficient market. Producers could take refuge in first sales, and others could simply index, taking a large number of transactions out of the price-setting process.

There already has been dramatic progress in the voluntary process. The volumes represented by the price reports submitted to NGI for the June 1 bidweek for monthly baseload gas were about double the volumes at the market low point last November. That still, however, is less than half the volumes of a year ago. While the monthly market is not likely to again reach those levels experienced in the super-heated boom period, some of you still have not resumed reporting.

Take note that the process already has improved. Instead of aggregated data, many companies now are submitting price reports almost entirely on a transaction level basis, which gives a much clearer picture of activity. Also, about three-quarters of the data submissions are directed to publishers from a back or middle company office rather than the trading desk.

On the publishers’ side, starting with the July 1 bidweek, both NGI and Platts will assign the pricing points to tiers 1-2-3, with those tiers delineated by the amount of trading activity. This will give market participants a clear picture of what the indexes are based on. These changes at both ends of the process are very real improvements to transparency. But it has to get better.

It’s up to you — to do the fixed price trades and report accurate information to the publications. The industry, your customers and the regulators will be watching these numbers.

In the past some of you have limited your price survey participation to only one publication, citing various reasons. Going forward FERC expects to be able to compare tables from several publications as a means of verification and a measure of reliability. Just as competition is the best guarantee of a true gas market, so competition among price reports adds to transparency and keeps the publishers honest.

NGI has been confidentially surveying and publishing price tables for 20 years and is second only to Platts in the volume of price reports it now receives. Currently NGI receives price reports from 80% of the top 20 marketers listed in our first quarter 2003 ranking and which are continuing in the wholesale trading business. By increasing participation we hope to be able to provide a direct comparison with the tables published by our primary competitor. Note that NGI also has petitioned the North American Energy Standards Board to help the industry and the publications in standardizing the pricing points to aid in this comparison.

NGI urges your support in this endeavor to bolster the price reporting system to provide an unprecedented level of price transparency and boost confidence in the natural gas market. Failure under the current market conditions will lead to aberrant market movements, price spikes, increased volatility, and outraged consumers, congressmen, governors, state commissions, etc. and so forth. We all know that the “so forth” wouldn’t be pretty.

Your industry reps and the trade press bargained hard at FERC to keep more onerous reporting items off the table. We have a chance through the end of the coming winter to show we can make it work. We urge you to make a success of this opportunity to construct, contract by contract and report by report, a reliable market for this very vital commodity to serve producers, consumers and the nation.

To find out how to start reporting your company’s transactions, please call Dexter Steis at 1-800-427-5747 today.

Respectfully Submitted for Your Consideration,

Natural Gas Intelligence

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