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Permalink Reply by Headly on December 21, 2010 at 12:13

Count me in as one who would love the $8.22.  Is the current spread between the two prices historically valid or has it changed recently?  Happy  Holidays to all!

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Permalink Reply by adubu on December 21, 2010 at 12:21

they are current prices today 21 Dec 2010 on NG Futures Spot Prices.  I guess the pipeline cost to New York is expensive

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Permalink Reply by Les Bamburg on December 21, 2010 at 12:55

Adubu, are you mixing prices?  The New York CG would be a daily cash price rather than a futures price.  For Henry Hub/NYMEX it could be either a daily cash price or the January futures contract.  Pipeline transportation cost is not the only factor.

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Permalink Reply by adubu on December 22, 2010 at 1:13

Les B-- the above prices are spot cash prices. I agree most contracts for NG are not sold on daily spot prices but some are and the avg for month is price operator receives and calculates price royalty is paid. Most as you imply are set for the month, I agree__ price on a set day during first few days of month for gas that month regardless of daily price change each day. The set price can be good or bad for royalty owner going forward thru the month. However the change in daily spot and future prices will have a impact on your monthly NG royalty price for the following month when contact price is set by the broker or to whoever the operator sells the NG

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Permalink Reply by Les Bamburg on December 22, 2010 at 3:25

Adubu, so the Henry Hub price you quoted was cash not a futures price.

 

The monthly baseload cash price is established during Bidweek before the month in question rather than during the first few days of the month.

 

As you saw the daily price at market areas such as New York or Chicago have little or no bearing on the supply area price since they can be impacted by short term events.

 

The daily change in a futures price such as the NYMEX January Contract will not have any impact on prices since it is only the final settlement price that is utilized in price setting.

 

The change in daily cash prices will have a minimal impact since it would be a small percentage of an operator's total gas sales and would be averaged with baseload gas sales pricing (1st of the Month Basis).

    

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Permalink Reply by adubu on December 22, 2010 at 3:53

Les B---yes we are saying basically the same thing with prices variable to location and by short term events. The events may have minimal impact but they all add up in the long run. It does get cold every winter--yes ---Some times we get a little too nit picky and too techanical with our discussion. A MERRY CHRISTMAS TO YOU  MY FRIEND

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Permalink Reply by Les Bamburg on December 22, 2010 at 4:16

Adubu, not trying to be picky but just want people to understand that a $10.50 daily cash price in New York has zero bearing on wellhead prices in Louisiana.  I also caution that people be clear in quoting futures prices and cash prices as these are two completely different things and generally unrelated.

 

Merry Christmas and Feliz Navidad.

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Permalink Reply by Les Bamburg on December 21, 2010 at 12:51

John, comparing daily spot cash prices has little value since most natural gas is not sold on a daily basis.

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Permalink Reply by Mattie on December 22, 2010 at 4:15

Les is correct - it will result in a small "blip" in your overall net price, if any, depending on how the producer and its marketing affiliate or downstream market pays the producer for deliveries to that point.  Usually, it's the owner of the transportation from Point A to Point B (a marketing company) that extracts the upside value in the commodity price during peak season, not the producer who sold to them.  Consider that the owner of the transportation contract on the pipeline pays huge "demand fees", which are sunk costs, EVERY DAY to have the right and ability to sell $10+ gas a few days a year (prices have actually been over $20 in the daily market lately).  It's really more of a function of "limited pipeline and storage delivery capacity on a daily basis" that dictates the spike in price - basically, an area of the country where demand far exceeds supply access; thus, the gas price is "on the margin"......causing the spot price to be "bid up" to extraordinary levels.  Think of a few thousand tailgate partying LSU fans running out of crawfish at Jerry's World at the Cotton Bowl - the guy that has a truckload left can expect to extract a MUCH higher value.  The only difference here is that utilities MUST buy the NG for their grandmas and little children to keep from freezing to death!  While it might be true that a few drunk Cajuns could wreak considerable havoc in DFW without their crawfish, it's debatable as to whether anyone would die!!  LOL!!!

 

Don't get me wrong - it's good to see some volatility in the market, even if it's only in the daily price and in a small portion of the country!  It gives some hope that prices can rebound in the future. 

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