Natural Gas Derivatives

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Natural Gas Derivatives

• Chad Shimaitis
• Director, Financial Trading
• Cinergy Marketing and Trade

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Physical Market

• Production
• Pipeline infra-structure
• Storage Facilities
• End-use markets

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Futures/Exchange Based Markets
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Futures

• Backed by Physical commodity
• Firmest contractual supply
• Natural gas delivery locationHenry Hub (Erath,
  LA)
• Require margin
• High liquidity
• No daily based market

New York Mercantile Exchange
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Over-the-Counter Markets
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NYMEX Swap

• NYMEX Swapfutures look-a-like (Fixed for float)
• Fixed price vs. the last day settle of the
  futures contract (generally)
• Settles in cash, rather than physical as with
  futures
• Generally executed between companies/counter-parti
  es
• Typically no margin, credit based
• Used to hedge supply or demand against fixed
  price risk

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Basis Swap

• Basis Swappipeline transportation derivative
  (Float for float)
• Locational spread
• One side usually based against last day settle of
  NYMEX future
• Locational side usually settles against IFERC or
  NGI publication
• Used to hedge transportation against locational
  price changes

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Swing Swap

• Swing SwapDaily physical market (Fixed for
  float, or float for float)
• Fixed price vs. daily settle (generally Gas
  Daily)
• Forward market usually uses IFERC or NGI index as
  fixed leg
• Used to hedge daily price risk