New Cornerstone Research Report: 2016 U.S. Natural Gas Trading Rises to Highest Level in Five Years

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The amount of physical natural gas traded in the United States rose 5 percent in 2016

The amount of physical natural gas traded in the United States rose 5 percent in 2016 to the second-highest amount in nine years, according to Cornerstone Research’s latest annual report, Characteristics of U.S. Natural Gas Transactions—Insights from FERC Form 552 Submissions. The publication also looks at trading activity across exchanges and reporting to price-index publishers.

This was the second consecutive annual increase in U.S. natural gas trading. Production, however, experienced a modest decline. Volume on the two main futures exchanges also went in different directions—CME’s volume rose 17 percent, while ICE’s declined 2.2 percent. In aggregate, trading of natural gas contracts on the two exchanges still showed an increase.

Last year was notable for new destinations for U.S. natural gas exports. The first shipment of liquefied natural gas (LNG) from the lower 48 states occurred early in the year. Also in 2016, the first LNG carrier passed through the new, larger set of Panama Canal locks, which provide a more direct route from the U.S. Gulf Coast to Asia. Europe remained a source of demand for U.S. natural gas, but now faces competition from Asia.

“The EIA is forecasting that the United States will become a net exporter of natural gas by 2020, largely due to the expected expansion of the LNG market,” commented Greg Leonard, a coauthor of the report. “While LNG made up less than 10 percent of total U.S. natural gas exports last year, the expected completion of additional LNG export facilities, the opening of the new, larger Panama Canal locks, and the implementation of more flexible LNG contracting practices are fueling this projected expansion.”

“One finding that we have been seeing for the last several years is that the ratio of fixed-price natural gas volume potentially reported to price-index publishers continues to decrease relative to the volume of index-priced natural gas,” noted report coauthor Nicole Moran. “This tells us that the index-priced volume is dependent on a smaller base of fixed-price volume. In 2016, the ratio reached 8.6. In other words, each 8.6 molecules of index-priced natural gas were priced off one molecule of fixed-price gas reported to price-index publishers.” 

Other Key Findings

  •     The trading activity reported in the Form 552 submissions totaled 130,012 tBtu transacted by 711 respondents.
  •     Of the 711 respondents, only 15 percent reported transaction information to the price-index publishers for themselves or at least one affiliate.
  •     For the second consecutive year, companies chose not to report more than half of the reportable fixed-price volume.
  •     Based on Cornerstone Research’s proprietary classifications of market participants, integrated-upstream firms and traders or wholesale marketers made 73 percent of the potentially reported fixed-price transactions.
  •     The top 20 companies accounted for approximately 43 percent of volume reported on Form 552 submissions.

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 700 staff and offices in Boston, Chicago, London, Los Angeles, New York, San Francisco, Silicon Valley, and Washington.

Please visit Cornerstone Research’s website for more information about the firm’s capabilities in economic and financial consulting and expert testimony.

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

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Susan Wittner

Jason Milch
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