Financial instruments help producers hedge gas deals in volatile market
- Ernst and Young, Houston, TX (United States)
The Natural Gas Policy Act (NGPA) of 1978 and more recently the U.S. Federal Energy Regulatory Commission's Order 636 have changed gas marketing from a totally regulated industry to one that responds to free-market forces. The stable but controlled market in which producers once sold gas has become highly competitive and more efficient. Consequently, prices have become more volatile; they respond more quickly than they did before to changes in supply of and demand for natural gas. Prior to deregulation of the natural gas industry, producers had fewer marketing options than they do today. Under a typical gas sales contract, producers sold gas to the nearest pipeline at regulated prices, which remained relatively stable along the interstate distribution chain. The system, however, failed to generate adequate supply of gas. In an effort to realign supply and demand, Congress initiated the deregulation of natural gas with NGPA, which phased out most wellhead price controls. A series of FERC actions culminating in Order 636 extended the process. Now, independent producers can sell gas directly to end users. Under Order 636, interstate pipelines no longer offer merchant services to gas customers. The paper discusses the change in risk profiles, price protection, futures and options, hedged exposure, setting price floors, off-exchange contracts, risk considerations, types of risks, business controls, back office controls, and credit monitoring.
- OSTI ID:
- 5826152
- Journal Information:
- Oil and Gas Journal; (United States), Vol. 91:44; ISSN 0030-1388
- Country of Publication:
- United States
- Language:
- English
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Related Subjects
NATURAL GAS
PRICES
CONTRACTS
DEREGULATION
MARKET
US FERC
US NATURAL GAS POLICY ACT
ENERGY SOURCES
FLUIDS
FOSSIL FUELS
FUEL GAS
FUELS
GAS FUELS
GASES
LAWS
NATIONAL ENERGY ACTS
NATIONAL ORGANIZATIONS
US DOE
US ORGANIZATIONS
030600* - Natural Gas- Economic
Industrial
& Business Aspects