From 2014 to 2015, U.S. natural gas trading volume increased 4 percent, according to a new report from Cornerstone Research. The report, Characteristics of U.S. Natural Gas Transactions—Insights from FERC Form 552 Submissions, finds that the trading volume measured by Form 552 submissions increased for the first time since 2011. The number of Form 552 respondents also increased, from 656 in 2014 to 680 in 2015.
Aggregate trading of natural gas contracts on the two main futures exchanges decreased for the third straight year. Intercontinental Exchange Inc. (ICE) trading decreased by 3.8 percent and CME Group Inc. (CME) trading increased by 2.4 percent as the CME gained market share.
U.S. natural gas production has been ramping up and is projected to continue increasing due to shale gas and tight oil. U.S. production is expected to outstrip U.S. consumption by 2018, and the prospects for liquefied natural gas (LNG) exports continue to drive the market.
Dr. Greg Leonard, Vice President and Head of Cornerstone Research’s Energy and Commodities Practice:
“This past year the volume of physical transactions reported to the FERC increased by 4 percent, reversing a downward trend since 2012, and at the same time, U.S. natural gas production increased by 5 percent.”
“The U.S. natural gas market remains an unconcentrated industry. The top 20 companies accounted for slightly over 43 percent of volume reported on Form 552 submissions. The industry continues to transact the largest portion of its transactions as next-month, index-price transactions.”
- The trading activity reported in the Form 552 submissions totaled 123,829 tBtu transacted by 680 respondents. The number of respondents increased by 24 from the prior year.
- 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. The top 20 companies accounted for slightly over 43 percent of volume reported on Form 552 submissions. Of the 20 leading companies last year, 17 of them were also among the top 20 in 2014.
- In 2015, the base of transactions used to set the price indices continued to shrink relative to the transactions that relied on the indices. The volume of transactions dependent on the indices was over seven and a half times larger than the volume of transactions potentially reported to the indices.
- The volume potentially reported to price-index publishers decreased for the fourth consecutive year.
- Of the 680 Form 552 respondents in 2015, 111 (16 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.
- For the first time, companies chose not to report more than half (50.7 percent) of the reportable fixed-price volume.
- Reporting to price-index publishers was inconsistent across industry segments in 2015. Based on Cornerstone Research’s proprietary classifications of market participants, 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 600 staff and offices in Boston, Chicago, London, Los Angeles, New York, San Francisco, Silicon Valley, and Washington. Please visit Cornerstone Research’swebsite for more information about the firm’s capabilities in economic and financial consulting and expert testimony.
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