[BETA] Fortnightly

The Kansas City Board of Trade has asked the Commodity Futures Trading Commission (CFTC) to approve a natural gas futures and options trading contract for a summer launch. The designated delivery point is the Permian/Waha Hub in West Texas, operated by Valero Transmission Co. Kansas City Board chairman Don Hills says the western gas futures contract is necessary because gas prices differ significantly across the country, due to seasonal weather extremes and the diverse origins of supply. A natural gas contract tied to delivery in West Texas would be more representative of the western U.S. market, and could be arbitraged against the New York Mercantile Exchange (NYMEX) gas futures contract.

Prices under the NYMEX contract, with delivery at Henry Hub, LA, generally reflect Gulf Coast gas supply and Northeast gas demand, explains Mark Prout, Kansas City Board vice president of marketing. But delivered-to-pipeline prices at the Waha interchange were 5 cents below the NYMEX price in February 1993, plunged to 52 cents below in May, then rebounded to 13 cents below the following July, Prout notes.

The Kansas City exchange currently trades wheat futures and stock indexes, and arbitrages against similar contracts on the Chicago Board of Trade. If approved, its gas futures contract would be the nation's second. The western contract would trade the same size units as NYMEX (10,000 million British thermal units), but would offer longer trading hours and a different delivery point. Its spot month would also expire later. In the future, Prout suggests, a reliable spread could be established between a western natural gas contract and NYMEX's proposed electricity futures contract. (em LG

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