The timely and widely available information on natural gas physical and financial transactions puts the gas market ahead of other commodities in transparency and efficiency, according to a study by research scholar and author William P. Albrecht.
The study, publicized by the Natural Gas Supply Association, finds that the information available to the natural gas market “has grown to a level that is unrivaled by other commodities. The system of index price formation and discovery is unique to the U.S. natural gas market and contributes substantially to price transparency and competitive pricing.”
In the physical market the regular surveys of prices at dozens of locations conducted by independent publishers follow guidelines established by the Federal Energy Regulatory Commission (FERC). Voluntary participants in the survey “follow equally rigorous FERC-established procedures for the reporting of this data.” Violations of the rules are subject to stringent enforcement action from FERC.
“The integrity of this structure has been well established for over five years and pricing information is available within the market for more than 25 Bcf/d, an amount equal in size to one-third to one-half of total U.S. natural gas consumption,” Albrecht said. In the financial market, the Nymex and IntercontinentalExchange electronic platforms provide real time transparency for futures, options and a large number of swaps.
The commodity markets that are closest in transparency to the U.S. natural gas market are the U.S. markets for oil and grains (corn, wheat and soybeans).
The author warns against “the very real danger that overzealous regulation will generate inefficiencies that will then be used to justify more regulation.” He advises regulators to balance the costs and benefits of increased regulation and “recognize that a healthy market does not necessarily mean declining or less volatile prices.”
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