EBF 301
Global Finance for the Earth, Energy, and Materials Industries

Lesson Activities

PrintPrint

Physical (cash) prices vs. Financial Settlements for natural gas Activity

In Lesson 5, you looked-up some natural gas cash prices at various hubs in the US using the link for Natural Gas Intelligence. Using those same cash hubs and the high price for the day on which you accessed the web site, compare the most recent prices to the NYMEX daily Settlement price for front-month natural gas. Use the Henry Hub Natural Gas Futures web site to find the Settlement price.

Important Note

Natural gas intelligence has stopped posting all the cash prices listed below. In completing the Lesson 9 Activity, please report the five cash prices that you see on the natural gas intelligence website. Please report the high price traded on the day and include a screen shot.  

As a reminder, the cash hubs that you might see in the report are:

  • EAST - "Transco Z6 (NY)" - this is the price of gas delivered to NYC.
  • GULF/TEXAS - "Henry" - this is the physical delivery point for financial natural gas futures contracts (Lesson 3)
  • GULF/TEXAS - "Houston Ship Channel" - this is the price of gas delivered to the huge petrochemical refining corridor east of Houston (Lesson 3).
  • MIDCONTINENT - "NGPL Midcont" - this is the price for gas in Western OK and the Texas Panhandle. It is also the area we used in Lesson 5 as an example for transportation costs.
  • WEST - "SoCal Border" - this is the price of gas delivered to the border of California for Southern California Gas Company ("SOCAL"), the country's largest LDC.
  • WEST - "Waha" - this is a major pipeline "hub" in West TX (recall the national pipeline grid which shows pipes intersecting one another), which reflects Texas demand as well as demand in NM, AZ and CA.
  • WEST - "Kingsgate" - this is an import point for Canadian gas.

Calculate the difference as follows: Cash price minus NYMEX. Post your answers in the Canvas Activity. These results represent what is known as the "actual Basis" relationship between the NYMEX Henry Hub contract delivery point for natural gas in south Louisiana and other physical delivery points in the US.

Please also include a screen shot or PDF printout of the Natural Gas Intelligence website to verify your reported prices, as well as a screen shot of the NYMEX natural gas futures site to verify your Settlement price. Do not simply submit a screen shot of the web site. You must submit both the screen shot and a typed response with your reported prices and basis calculations.

Grading Criteria

This activity is worth up to 20 points on the EBF 301 grading scale. You will earn up to 4 points for each basis calculation correctly reported. TAKE NOTE!!! SUBMISSIONS THAT DO NOT INCLUDE SCREEN SHOTS FROM THE NYMEX AND NATURAL GAS INTELLIGENCE WEB SITE WILL RECEIVE NO CREDIT!!!

Fundamental Factors

The Fundamental Factors activity is due as usual this week, at 11:59 pm on Sunday, and is worth 30 points on the EBF 301 grading scale. Please refer to the Fundamental Factors Instructions for additional information and grading rubric.

Submitting Your Work

Basic Energy Risk Hedging: in Canvas. Submit your work as a single word processed document to the Lesson 9 Hedging Activity in Canvas.

Fundamental Factors: Submit your work as a single word processed document to the Lesson 9 Fundamental Factors Activity in Canvas.