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| El Paso Natural Gas Co. San Juan Basin Swap Futures (Platts IFERC) |
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The San Juan Basin is a major natural gas-producing region in New Mexico near the Four Corners where the borders of New Mexico, Arizona, Utah, and Colorado come together. Most of the gas produced in the basin is shipped to southern California via the El Paso Pipeline, but some of the production serves Arizona and markets in the Rockies. It is the relative strength and volatility of the California natural gas market, however, that drives wellhead pricing in the San Juan Basin.
The volatility of natural gas prices has given rise to a basis market that is quoted as a differential to the price of the New York Mercantile Exchange, Inc., Henry Hub natural gas futures contract. The Henry Hub futures contract is the benchmark for forward natural gas markets industry-wide because of its liquidity and transparency.
Historically, San Juan Basin gas has been priced at a discount to the Henry Hub futures contract, but the strong energy markets in California have recently turned that relationship around.
To better help market participants offset their price risk in the producing area, the Exchange provides an El Paso Natural Gas Co. San Juan Basin basis swap futures contract. The final settlement is calculated as the Platts Inside FERC's Gas Market Report El Paso San Juan Basin index price minus the final settlement price of the NYMEX Division Henry Hub natural gas futures contract for the corresponding month on the last trading day. Platts Inside FERC calculates the San Juan Basin index price from its monthly bid week survey of buyers and sellers who ship base-load gas.
In addition to the basis swap futures contracts, the Exchange offers index swap futures and swing swap futures contracts that let market participants fine tune their risk management strategies.
Index swap futures contracts are part of the evolution of the modern natural gas markets. The NYMEX Division natural gas futures contract, the industry pricing benchmark, sets the anchor for all other trading strategies particularly those for hedging location basis differentials.
The index swap futures contract is a financially settled monthly contract that captures the differential of the daily market fluctuations during the delivery month as reported by Platts Gas Daily against the bid week price which is determined in the last days of the prior month and is reported by Platts Inside FERC. The bid week price reflects what is expected to happen during the delivery month; the daily price is what actually happens.
Swing swap futures contracts are also offered and help market participants manage their price risk with greater precision. The financially settled daily swing swap futures contract settles against the Platts Gas Daily index price at a specific location. There is a contract for every calendar day, or "flow date."
The lot size of 2,500 million Btus represents a commonly traded market unit that is one-quarter of the size of the Henry Hub futures contract, giving market participants additional flexibility in managing price risk. The contract must be traded as a multiple of the number of calendar days in the month.
The basis, index, and swing swap contracts are all available for trading on the NYMEX ClearPort® trading platform or can be submitted solely for clearing.
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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