Double-Digit Reductions in U.S. Natural Gas Trading According to New Cornerstone Research Report

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Decreases extend multiyear trend of falling trading volumes.

Greg Leonard, Vice President, Cornerstone Research

The U.S. natural gas market remains an unconcentrated industry. The industry continues to transact the largest portion of its transactions as next-month, index-price transactions.

From 2013 to 2014, the major U.S. natural gas exchanges experienced double-digit reductions in the number of contracts traded, according to a new report published by Cornerstone Research. The report, Characteristics of U.S. Natural Gas Transactions—Insights from FERC Form 552 Submissions as of May 16, 2015, shows that Intercontinental Exchange Inc. (ICE) volume declined by 22 percent from 2013 to 2014, while natural gas products volume for the CME Group Inc. (CME) decreased approximately 12 percent. These decreases extended a multiyear trend of falling trading volumes during a time of increased natural gas production in the United States.

The volume of trading as measured by FERC Form 552 submissions also fell slightly in 2014. The trading activity reported in Form 552 submissions for 2014 totaled 118,901 tBtu, a decrease of 1.4 percent, transacted by 656 companies.

Commentary

Dr. Greg Leonard, Vice President and Head of Cornerstone Research’s Energy and Commodities Practice

“This past year the volumes of physical transactions reported to the FERC declined slightly at the same time that the major natural gas exchanges, ICE and CME, reported double-digit reductions in the number of trading contracts. These decreases in trading volume in combination with the increase in U.S. natural gas production mean that the average molecule of natural gas was traded fewer times during 2014 in its path from producer to consumer.”

“The U.S. natural gas market remains an unconcentrated industry. The industry continues to transact the largest portion of its transactions as next-month, index-price transactions.”

Key Findings

  • The volume of reported transactions indicates that, on average, a molecule of natural gas was traded through approximately 2.4 transactions from production to consumption.
  • The U.S. natural gas industry remains unconcentrated, with a large number of diverse participants. Of the 20 leading companies last year, 18 of them were also among the top 20 in 2013.
  • In 2014, the base of transactions used to set the price indices relative to the transactions that relied on the indices continued to shrink. The volume of transactions dependent on the indices was almost seven times larger than the volume of transactions that formed the indices.
  • The volume reported to price-index publishers decreased for the third consecutive year.
  • Of the 656 Form 552 respondents in 2014, 112 (17 percent) reported transaction information to the price-index publishers for at least one affiliate. While the majority of Form 552 respondents did not report, the reporting companies tended to be larger than average.
  • Reporting to price-index publishers was inconsistent across industry segments in 2014. Integrated-upstream firms reported index-price transactions more than any other industry segment.

About FERC Form 552 Submissions

The Federal Energy Regulatory Commission (FERC) receives and compiles the most comprehensive information on trading activity and pricing methods in the U.S. natural gas trading markets. By supplementing the data from FERC’s Form 552 with proprietary classifications of market participants, Cornerstone Research adds deeper insight into the market activities and characteristics across the various types of participants.

About Cornerstone Research

Cornerstone Research provides economic and financial consulting and expert testimony in all phases of complex litigation and regulatory proceedings. The firm works with an extensive network of prominent faculty and industry practitioners to identify the best-qualified expert for each assignment. Cornerstone Research has earned a reputation for consistent high quality and effectiveness by delivering rigorous, state-of-the-art analysis for over 25 years. The firm has more than 500 staff and offices in Boston, Chicago, London, Los Angeles, Menlo Park, New York, San Francisco, and Washington.

http://www.cornerstone.com
Twitter at @Cornerstone_Res

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