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Alberta produces 90% of Canada's natural gas, and is the source of most Canadian natural gas exports to the United States – volume that accounts for approximately 13% of U.S. natural gas requirements.
The AECO-C/Nova Inventory Transfer (NIT) market center is a major connection point to long-distance transmission systems, which take gas to points throughout Canada and the United States. Some of the interstate pipelines that make up the Henry Hub, the delivery point for the New York Mercantile Exchange, Inc., benchmark natural gas futures contract, also connect with midwestern and northeastern markets that are connected to AECO/NIT.
The volatility of natural gas prices, and the basis relationships between Henry Hub and other market centers like AECO-C/NIT, has given rise to a basis market that is quoted as a differential to the price of the Exchange's Henry Hub natural gas futures contract. The futures contract is used as a benchmark for the forward pricing of natural gas industry-wide because of its liquidity and transparency. Through active trading in basis differentials, a highly liquid futures market has extended price transparency throughout North America.
To better help market participants offset their price risk related to the market in Canada's main producing area and mitigate the risk of counterparty default, the New York Mercantile Exchange provides an Alberta basis swap futures contract. The final settlement is calculated as the Canadian Gas Price Reporter AECO-NIT Index, priced in U.S. dollars per mmBtu, minus the final settlement price of the NYMEX Division Henry Hub natural gas futures contract for the corresponding month on the last trading day.
The lot size of 2,500 million Btus represents a commonly traded market unit and is one-quarter the size of the Henry Hub futures contract, giving market participants additional flexibility in managing price risk. The contract must be traded in a multiple of the number of calendar days in the month.
All positions will be aggregated and margined according to the value at risk as calculated by the SPAN® system. Cross margining of offsetting positions across markets can result in reduced margin obligations.
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