Henry Hub Natural Gas

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Natural gas plays a major role in the United States energy profile, where it accounts for almost aquarter of total energy consumption. Its market share is likely to expand because of the favorablecompetitive position of gas in relation to other fuels, and the tightening environmental standardsfor fuel combustion. Industrial users and electric utilities together account for 59% of the market;commercial and residential users combined are 42%.

The industry has gone through a metamorphosis since the enactment of the Natural Gas Policy Act of 1978, changing from an almost totally regulated industry to one that today largely operates as a free market. The New York Mercantile Exchange launched the world's first natural gas futures contract in April 1990. Volume and open interest have grown rapidly, establishing the contract as the fastest growing instrument in Exchange history.

The Exchange marked another milestone in the energy markets in October 1992 when it launched options on natural gas futures, giving market participants additional flexibility in managing their market risk.

Industry participation in the natural gas futures market comprises a wide cross-section of the industry from producers to end-users. Many natural gas and electric utilities have either recently begun using the NYMEX Division natural gas futures and options contracts, or are considering doing so. A number of state utility regulators have either given permission to utilities in their jurisdictions to use the NYMEX Division markets or are considering such proposals.

Recent legislation concerning air pollution control should only contribute to the market's further growth.

From a market of stable but controlled prices and long-term contracts, the natural gas market has emerged as a dynamic, highly competitive business with flexible pricing, an active spot market, and widespread use of short- to medium-term contracts. This is causing a fundamental change in the way each of the traditional segments of the industry operate: producers, pipelines, gas utilities, and industrial users.

The radical change has also led to the development and rapid growth of a business that did not exist a few years ago, the natural gas marketer who links buyers with sellers and often arranges pipeline transportation for his customers. The natural gas futures contract is especially well suited to manage the increasing price risk that has accompanied these market changes.

As the natural gas market grows, cash market trading centers continue to evolve in North America. The Exchange is researching additional futures contracts that would offer risk management opportunities more closely tailored to these markets.

Natural Gas Contract Specifications

See Also: Natural Gas Futures Special Report