The results are in from the Federal Energy Regulatory Commission’s Order 552 survey of the natural gas market with 821 companies reporting by July 1 as buyers and/or sellers of spot market natural gas. A quick look at the data shows an expected heavy concentration of buy/sell volume at the top, with the top 20 largest traders accounting for more than 52 Tcf, a hefty 58% of the 90 Tcf in total volume of reportable transactions exchanged in 2008.
Bidweek purchases and sales accounted for nearly 30 Tcf, or 57%, of the 52 Tcf traded by the top 20 marketers, with daily transactions accounting for an additional 17.5 Tcf, or 34% of the total. Physical basis and trigger deals accounted for the remaining 9%.
The data also reveal a high volume of index deals versus fixed-price deals consummated by the top 20 marketers (see NGI, June 29). Cumulatively, the top 20 traders indicated that they indexed roughly 56% of their next-day trading volumes and 87% of their next-month or bidweek volumes. A statistician from the U.S. Department of Agriculture, which surveys some commodity prices, questioned by NGI as to the impact of the high volume of index transactions, suggested, “It is what it is. What you have to be concerned about is the fixed-price volumes that your surveys capture.”
Looking at the top 2.5% of the companies that are responsible for 58% of the total volume, a majority of the respondents are actively reporting their deals to index publishers. According to respondents’ filings, all six of the top six traders, seven out of the top 10, 12 out of the top 15, and 13 of the top 20 said they reported transactions to a publisher during the year. On a volume basis, the 13 traders out of the top 20 who said they were reporting accounted for 79% of the overall volume of the top 20.
NGI has not yet tallied all of the filings and has excluded the 21 smaller companies that reported apparently erroneous, order-of-magnitude higher volumes than the largest marketers.
In its Order No. 704, issued initially in December 2007, FERC said one of the goals of Form No. 552 is to allow the Commission to “not only understand the transactions used to formulate price indices; it is to understand how influential price indices are in the overall transacting of natural gas in U.S. wholesale markets.” The order stems from transparency provisions included in the Energy Policy Act of 2005, which directed the Commission “to facilitate price transparency in markets for the sale or transportation of physical natural gas in interstate commerce.”
Since the 2001-2002 time period, after the fall of Enron, when the Commission and the Commodity Futures Trading Commission uncovered numerous attempts at market manipulation by individuals in some of the large marketing companies, FERC, the industry and the price publishers have worked to regularize the price surveys. Most of the offenders from earlier days are no longer in the natural gas market, and the Commission dodged calls to set up its own mandatory price reporting system.
FERC instead came up with a policy statement setting the rules for collection of price information and giving its blessing to publishers who signed on to abide by the rules (NGI is an approved index publisher) (see NGI, July 28, 2003). FERC’s first survey of the gas market required natural gas companies only (not end-users) to say whether they cooperated with the published surveys. If they did, they had to pledge to do so according to the FERC rules, as enforced by the publishers. That first survey showed the indices were capturing a significant amount of price data, Commission staff said (see NGI, Nov. 22, 2004).
FERC staffer Ted Gerarden said the survey in March 2004 showed 55-65% participation in the price surveys. It was noted that the percentages cooperating with the surveys were in the 90s for the larger traders, with the no-shows mainly among smaller companies doing few fixed-price trades.
An industry study of price submissions at about the same time showed that NGI and Platts captured an estimated 70-75% of reportable fixed-price transactions, daily and bidweek (see NGI, May 10, 2004).
In the FERC surveys the data collected is not an attempt to measure production since a single package of gas may go through multiple transactions. Nor will it measure the entire buy-sell market, since it does not ask for all trades. On fixed-price trades participants only are to report their fixed-price spot market transactions for physical gas that meet the restrictive criteria set out by index publishers in their day-ahead and monthly price surveys. Almost all indexed transactions were to be reported with the exception of affiliate or futures-based transactions or sales to retail consumers under a state-approved bundled tariff. In Order 704B FERC clarified that cash-out, balancing and in-kind transactions are reportable on Form No. 552 if they rely on, contribute to or could contribute to a price index.
FERC had extended the deadline for the filings from May 1 to July 1 when some market participants and representative groups said they were struggling to come up with the required information for 2008 since their books are not set up to break out their transactions in the prescribed manner. Marketers who regularly report to the publishers’ price surveys would have less trouble since their administrative systems are set to separate the different types of transactions. For instance, only arms-length transactions occurring during set time periods are used in the daily incremental and monthly baseload or bidweek surveys.
Companies did not have to fill out volume information if their 2008 reportable natural gas purchases and sales added up to less than 2.2 million MMBtu or 2 TBtu. They, nevertheless, would have to file the Form 552 if their sales or purchase came under a blanket certificate, but they could leave out volume information if they were under the de minimis limit.
Veteran regulatory attorney Dena Wiggins, a partner at Sutherland, was advising her clients to send in forms with their names on them because the blanket certificate requirement is mostly all inclusive. It means, for instance, that if one of an end-user’s packages of gas came under a blanket certificate anywhere in the daisy chain of transactions between wellhead and burnertip, it would be deemed a blanket certificate transaction. Since it might be difficult to tell if a blanket certificate sale was involved somewhere along the line, it would be safer to fill out the form.
Wiggins, who is general counsel to the Process Gas Consumers organization, said that regarding instructions on other parts of the form, FERC staff had suggested that she contact the publishers, which she did. She also said FERC staff had told her there would be a safe harbor for unintentional errors in the first year of the 552 survey.
Both NGI and Platts make their survey methodologies accessible on their websites. And NGI staff is always available to answer any questions regarding contributing to its surveys.
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