Mastering the Commodities Markets

Gas Pricing and Price Discovery

Supply and demand are key price drivers in any commodity – financial or otherwise. At the time of writing, natural gas prices have fallen to a 20-year low due to the arrival of LNG and the enormous discoveries of shale gas in North America – all of which is contributing to the debate over whether purchasers should withdraw from the ‘norm’ of negotiating long-term contracts while it is cheaper to buy in the spot market.

Natural gas is typically traded in amounts of 10,000 million British thermal units (10,000 MMBtu), with natural gas futures traded on NYMEX (now part of CME) and to a lesser extent on ICE. If physical delivery is chosen in the US this is via the Sabine Pipe Line Co. into the Henry Hub in Louisiana ...