Gas futures can help independents manage their risks
- Booz-Allen and Hamilton Inc., San Francisco, CA (US)
The advent of natural gas futures trading presents the natural gas industry with a powerful tool and a formidable challenge. On the one hand, producers, pipelines, local distribution companies (LDCs), end-users, and marketers can use gas futures to hedge against price risk, protecting companies against abnormal price spikes, stabilizing cash flows, enabling companies to write long-term contracts, and facilitating planning. Gas futures can also be used in combination with oil futures to hedge against fuel switching. On the other hand, the introduction of natural gas futures trading will dramatically reshape the natural gas business. Natural gas companies from smaller independent producers to large end-users will be forced to adapt. Short-term price volatility will tend to increase. At the same time, long-term price volatility should decline. Information flows will increase. Oil and gas prices may become more closely linked. Futures prices will become benchmarks for formula-priced contracts. Increased longer-term and mid-month contracting will reduce the current reliance on month-end spot market contracts. And new players will enter the natural gas business. As a result of these trends, natural gas companies will need to adopt new strategies, systems, and organizational structures in order to remain competitive.
- OSTI ID:
- 5804609
- Journal Information:
- Oil and Gas Journal; (USA), Journal Name: Oil and Gas Journal; (USA) Vol. 88:43; ISSN OIGJA; ISSN 0030-1388
- Country of Publication:
- United States
- Language:
- English
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