Capacity trading in the secondary market overall showed an increase in the last three months compared to the August through October period last year with above maximum rate trades under the new FERC Order 712 no-cap rules contributing more than one-third of the gain in the number of transactions, according to Capacity Center, which tracked the capacity release deals on 53 interstate natural gas pipelines.

The overall trades in the period went from 5,686 in August through October 2007 to 6,569 in the same period this year, with 310 of the nearly 900-deal gain attributed to above maximum rate trades. The above maximum trades went from 61 in August, the first month of Order 712 operation, to a combined total of 249 in September and October.

Since Aug. 1 when the cap was lifted on short-term trades a total of 250 Bcf of the 5 Tcf of transportation and storage capacity traded was the result of above maximum rate deals. “We could see the market had some, but not a huge, reaction to Order 712 in August…But starting in September and continuing into October, it really took off, with 241 above max deals done,” said Greg Lander, president of Boston-based Capacity Center. “I don’t think the market has even begun to fully realize the impact of Order 712 and we expect to see an even bigger increase in trading activity with much higher dollars at stake as we head into the winter season.”

The above maximum deals for the quarter accounted for $527 million of value and 5% of total traded capacity. Of that amount “$284 million represented the profit to sellers of these above max capacity deals,” Lander said. That represented 15% of the total market value traded, with individual deals ranging from a low of 1% above maximum to a high of 1,800% above maximum with the average coming in at two times the maximum rate.

Retail aggregators continued to dominate the secondary market with 62% of the deals traded, according to Capacity Center data. These aggregators “may be well positioned this winter to capture above max rate profits on capacity to serve high-demand markets,” Lander said.

While the ratio of monthly deals held steady, Lander said it was evident traders were migrating from the one- to five-month deals to longer five-month-to-one-year transactions. “This could negatively impact those companies who are going to get caught capacity short this winter and potentially create a windfall for those taking capacity positions now.”

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