Transcript A SUNY Sponsored Training Seminar on Electric Procurement

The Natural Gas/Electricity Nexus
Brad Leach
Senior Director, Electricity and Natural
Gas Research
NYMEX
APEX 2006 Annual Conference
Association of Power Exchanges
Seoul, Korea
October 31, 2006
An Overview of NYMEX
• Regulated by Commodity Futures
Trading Commission as a Trading
Facility and a Clearing Organization
• Two Divisions: NYMEX and COMEX
• Continuous 133-Year History as
Commodity Exchange
• Open Outcry Floor Trading
• Web-Based Clearing and Trading
NYMEX Regulatory Protections
•
•
•
•
•
NYMEX CFTC Regulation
Compliance Department
Market Surveillance
Trade Surveillance
Financial Surveillance
NYMEX Clearinghouse and
Financial Protections
• Currently 40 Clearing Members
• Clearing Member Financial Requirements
– $5 Million Minimum Net Working Capital
• Currently $14 Billion on Deposit in Margin Funds
• Rated AA+ by S&P
• Clearing Member Guaranty Fund of Over $140 Million
• $100 Million Default Insurance
• Margin Requirements
– Original
– Variation
• NYMEX Emergency Procedures
Total Volume of NYMEX Cleared
Contracts in Million Contracts / Year
180
160
Options
Futures
140
120
100
80
60
40
20
0
96
97
98
99
00
01
02
03
04
05
Contracts
NYMEX Natural Gas
Annual Volumes
40,000,000
35,000,000
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Thru
9/06
Futures
Options
NYMEX CLEARPORT®
5/31/02-10/20/06
700,000
600,000
Contracts
500,000
400,000
300,000
200,000
100,000
Ja
n03
M
ay
-0
3
Se
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Ja
n04
M
ay
-0
4
Se
p04
Ja
n05
M
ay
-0
5
Se
p05
Ja
n06
M
ay
-0
6
Se
p06
02
Se
p-
M
Date
ay
-
02
0
20-Day Average
5-Day Average
60-Day Average
NYMEX-CME Alliance – Growth thru
Distribution and Superior Technology
Why the NYMEX/CME Alliance
Is Succeeding
– Customer Access to Superior Technology
– Global Distribution – Our customers want efficiency
of transaction, in one location.
– Ability to add key new contracts for better market
efficiencies.
NYMEX CME Globex®
Contracts
• Energy Contracts Listed on CME Globex®
• Full Size Contracts
NYMEX miNY™ Contracts
• Crude Oil Financial Futures (WS) NYMEX miNY Crude Oil Futures
(QM) Heating Oil Financial Futures (BH)NYMEX miNY Natural Gas
Futures (QG)RBOB Gasoline Financial Futures (RT) NYMEX miNY
Heating Oil Futures (QH) Natural Gas (Penultimate) Financial
Futures (HP)NYMEX miNY Gasoline Futures (QU) Natural Gas
(Last-day) Financial Futures (HH)
• NYMEX Europe Contracts Brent Crude Oil Futures (SC) NYMEX
Europe miNY Brent Futures (QB) Gasoil Futures (GR)
• Physically Delivered Contracts
• Crude Oil (CL) Natural Gas (NG) Gasoline (HU, RB) Heating Oil
(HO)
NYMEX ClearPort® Trading and CME
Globex® Trading
50000
00000
50000
00000
50000
Daily
CPT
00000
10-Day
50000
20-Day
00000
Globex
50000
Sep-06
Aug-06
Jul-06
Jun-06
May-06
Apr-06
Mar-06
Feb-06
Jan-06
Dec-05
Nov-05
0
6/3/2005
4/3/2004
2/3/2003
12/3/2001
10/3/2000
8/3/1999
6/3/1998
4/3/1997
2/3/1996
12/3/1994
10/3/1993
8/3/1992
6/3/1991
4/3/1990
$/MMBtu
NYMEX NATURAL GAS FUTURES
FRONT MONTH SETTLE
(4/3/90-11/30/05)
16.000
14.000
12.000
10.000
8.000
6.000
4.000
2.000
0.000
10/13/06
9/8/06
8/4/06
6/30/06
5/26/06
4/21/06
3/17/06
2/10/06
1/6/06
12/2/05
10/28/05
9/23/05
8/19/05
7/15/05
6/10/05
5/6/05
4/1/05
$/MMBtu
NYMEX NATURAL GAS FUTURES
FRONT MONTH SETTLE
(4/1/05-10/20/06)
18.000
16.000
14.000
12.000
10.000
8.000
6.000
4.000
2.000
0.000
11
/2
11 /05
/1
7/
12 05
/2
12 /05
/1
7/
05
1/
1/
1/ 06
16
/
1/ 06
31
/
2/ 06
15
/0
3/ 6
2/
3/ 06
17
/0
4/ 6
1/
4/ 06
16
/0
5/ 6
1/
5/ 06
16
/0
6
$/MMBtu
UK NBP Natural Gas Prices
Day-Ahead
35
30
25
20
15
10
5
0
U.S. Natural Gas Vintage Production
70
2004
2003
60
2002
2001
2000
50
1999
1998
BCF/Day
40
1997
1996
30
1995
1994
20
1993
1992
1991
10
1990
<1990
Year
n04
Ja
n03
Ja
n02
Ja
n01
Ja
n00
Ja
n99
Ja
n98
Ja
n97
Ja
n96
Ja
n95
Ja
n94
Ja
n93
Ja
n92
Ja
n91
Ja
Ja
n90
0
Source: IHS Energy
Natural Gas Volatility
Front Month
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
Jan01
Sep01
May02
Jan03
Sep03
Historical 20 Day Annualized Volatility
May04
Jan05
Sep05
May06
Implied Volatility ( Front Month)
Gulf Of Mexico Gas Decline
First Year Well Depletion
Effective Decline Rate, %/yr
60%
50%
40%
30%
20%
10%
0%
1
3
5
7
9
1
3
5
7
9
1
3
5
96 997 998 999
-7 2-7 4-7 6-7 8-7 0-8 2-8 4-8 6-8 8-8 0-9 2-9 4-9
9
0
1
1
1
1
7
7
7
7
7
8
8
8
8
8
9
9
9
19
19
19
19
19
19
19
19
19
19
19
19
19
Wells Completed During Time Period
SOURCE: Simmons & Company International
Texas First Year Natural Gas Well
Depletion
Source: Gary S.
Swindell
Canada First Year New Well Depletion
Annual Decline Rate, %
30%
20%
10%
0%
1966-69
1970-74
1975-79
1993
1995
1996
1997
Date Well Completed
SOURCE: Simmons & Company International
Year
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
n04
n03
n02
n01
n00
n99
n98
n97
n96
n95
n94
n93
n92
n91
n90
Bcf/day
Gulf of Mexico - Shelf / Deep Water Comparison
16
14
12
10
8
Deep Water
Shelf
6
4
2
0
Source: IHS Energy
Source: EIA
U.S. Natural Gas Total Consumption
3,000,000
2,500,000
2001
2002
2003
2004
2005
2,000,000
1,500,000
1,000,000
500,000
D
ec
Se
p
O
ct
N
ov
Fe
b
M
ar
A
pr
M
ay
Ju
n
Ju
l
A
ug
Ja
n
0
Source: EIA
1997 U.S. Natural Gas Consumption Sector
Distribution
20%
24%
Residential
0%
Commercial
Industrial
Vehicle
15%
Electric
41%
Source: EIA
2005 U.S. Natural Gas Consumption Sector
Distribution
24%
29%
Residential
Commercial
Industrial
Vehicle
15%
Electric
32%
Source: EIA
U.S. Natural Gas Sector
Distribution Summary
(1997-2005)
• Industrial use has declined from 41% to 32% of total
U.S. consumption (-1.9 Tcf)
• Electricity use has increased from 20% to 29% of
total consumption (1.7 Tcf)
• This shift from industrial to electric use has resulted
in an increase in total natural gas that is subject to
weather sensitive demand and pricing
2003 Natural Gas Electricity
Generation
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Fra Ca Ge Ko Gre Sp US Jap Me UK Ital Tu
y rke
nce nad rma rea ec ain
an xico
y
e
a
ny
Source: IEA
NYMEX Electricity Complex Volume
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
1996
1998
2000
2002
2004
2006
(Jan-Sep
NYMEX Electricity Complex
•
•
•
•
Monthly Peak Contracts
– PJM
– NYISO
– ISO-NE
– AEP-Dayton
– NI Hub
– MISO Hubs
– ERCOT
– DOW Jones Western Indices
Monthly Off-Peak Contracts
– PJM Western Hub
– NYISO
– ISO-NE
– AEP-Dayton
– NI Hub
– Cinergy
PJM Options Contract
Daily Peak Contracts
– PJM
– NYISO
– ISO-NE
– NI Hub
– AEP-Dayton
– Cinergy
New England Natural Gas and Electricity
Prices
2/3-3/31/03
140.00
30.00
120.00
25.00
15.00
60.00
10.00
40.00
0.00
0.00
24
-F
eb
3M
ar
10
-M
ar
17
-M
ar
24
-M
ar
31
-M
ar
5.00
10
-F
eb
17
-F
eb
20.00
NE Power
NE Gas Avg
$MMBtu
20.00
80.00
3Fe
b
$MWh
100.00
PJM and ISO-NE DAM Electricity Prices v.
Natural Gas
7/10-8/31/06
50
2
0
0
ISO-NE DAM
PJM Western Hub
28-Aug
4
21-Aug
100
14-Aug
6
7-Aug
150
31-Jul
8
24-Jul
200
17-Jul
10
M-3
$MMBtu
12
250
10-Jul
$MWh
300
Mass Hub and PJM Western Hub
Electricity Real-Time Peak Daily Prices
350
300
250
200
Mass
Hub
150
100
PJM
Western
Hub
50
30
/2
00
6
8/
20
/2
00
6
8/
10
/2
00
6
8/
31
/2
00
6
7/
21
/2
00
6
7/
7/
11
/2
00
6
0
PJM Western Hub Peak Real-Time Hourly Prices
7/10-8/31/06
900
800
700
500
400
300
200
100
28
8/
21
8/
14
8/
7
8/
31
7/
24
7/
17
7/
10
0
7/
$/MWh
600
Year on Year Power Demand for Natural
Gas - NPCC
Mcf
NPCC 2005
NPCC 2006
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
8/
28
8/
21
8/
14
8/
7
7/
31
7/
24
7/
17
7/
10
-
New England Pipeline Capacity Utilization
7/10-8/31/06
70%
60%
50%
40%
30%
20%
10%
0%
28-Aug
21-Aug
14-Aug
7-Aug
31-Jul
24-Jul
17-Jul
10-Jul
Year on Year Power Demand for Natural
Gas - Total US
2005
Mcf
2006
20,000,000
18,000,000
16,000,000
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
8/
28
8/
21
8/
14
8/
7
7/
31
7/
24
7/
17
7/
10
0
Many Storage Fields Will Reach Capacity
Before November
NYMEX NG Forward Curves
$16
$14
$12
10/20/2006
$10
12/9/2005
$8
9/20/2005
$6
6/20/2005
$4
$2
$0
Jul-05 Jan-06
Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
December Natural Gas Prices
Settlements in USD
•
10/23/06
• NYMEX:
$7.81
• UK:
$11.15
• Zeebrugge: $11.06
12/13/05
$15.38
$16.65
December Spark Spreads
Quotes in USD
10,000
• U.S.
-25.92
• U.K.
-15.59
• Germany -31.01
7,000
.87
17.85
2.12
Btu/KWh
DISCLAIMER
The New York Mercantile Exchange, Inc., (the “Exchange”) is
making this information available for informational purposes
only. The Exchange has attempted, wherever possible, to
make statements in good faith based upon current information
and expectations by using words such as "anticipate,"
"believes," "expects" and words and terms of similar
substance. Any forward-looking statements made by, or on
behalf of the Exchange, involve a number of risks, trends, and
uncertainties and other factors that may cause actual results
to differ materially. As such, readers are cautioned not to
place undue reliance on the information contained herein,
which only speaks as of the date of the issuance of this
information.