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Natural Gas History

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Contract History

If you are interested in trading Natural Gas futures it is helpful to become familiar with the history of the Natural Gas market. Natural gas is one of the most abundant energy sources in the world. Like oil, it is created by the decomposition of organic matter. The lightest of all hydrocarbons, natural gas is commonly found in underground formations either by itself; associated with or lying atop oil deposits; or dissolved in crude oil.

Natural gas accounts for almost a quarter of United States energy consumption, and the NYMEX Division natural gas futures contract is widely used as a national benchmark price. The futures contract trades in units of 10,000 million British thermal units (mmBtu). The price is based on delivery at the Henry Hub in Louisiana, the nexus of 16 intra- and interstate natural gas pipeline systems that draw supplies from the region's prolific gas deposits. The pipelines serve markets throughout the U.S. East Coast, the Gulf Coast, the Midwest, and up to the Canadian border. An options contract and calendar spread options contracts provide additional risk management opportunities.

Two financially-settled natural gas (HH & HP) contracts are available for trading on the CME Globex® system. The HH contract settles on the same date as the physically-delivered NG contract and HP is a penultimate contract. Both contracts are listed for 72 months.

The spread between natural gas futures and electricity futures – the spark spread – can be used to manage price risk in the power markets.

Because of the volatility of natural gas prices, a vigorous basis market has developed in the pricing relationships between Henry Hub and other important natural gas market centers in the continental United States and Canada. The Exchange makes available for trading a series of basis swap futures contracts that are quoted as price differentials between approximately 30 natural gas pricing points and Henry Hub. The basis contracts trade in units of 2,500 mmBtu on the NYMEX ClearPort® trading platform. Transactions can also be consummated off-Exchange and submitted to the Exchange for clearing via the NYMEX ClearPort® clearing website as an exchange of futures for physicals or exchange of futures for swaps transaction.

Energy Complex

Click on the link above to download a very informative .pdf brochure entitled "Energy Complex". It was published by the New York Mercantile Exchange. This is a must read guide for any novice or advanced trader considering an investment in the natural gas commodity futures and options markets.

Commodity trading is not suitable for everyone. The risk of loss in trading can be substantial. This material has been prepared by a sales or trading employee or agent of Van Commodities, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Van Commodities, Inc. Research Department. Please view our Risk Disclaimer.

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