Energy is being consumed at every hour of the day everywhere on earth. Thus, energy commodities are being bought and sold constantly to fill this demand. When we are talking about prices for the actual physical production and consumption of natural gas and crude oil, we are talking about the "cash" market. In this lesson, we will explore the ways in which cash prices are established in the physical marketplace, the fundamental factors that impact them, historical pricing, the main publications that report these prices, and the methodologies they use to collect the data.
At the successful completion of this lesson, students should be able to:
This lesson will take us one week to complete. There are a number of required activities in this module. The chart below provides an overview of the activities for Lesson 6. For assignment details, refer to the location noted.
All assignments will be due Sunday, 11:59 p.m. Eastern Time.
REQUIREMENT | LOCATION | SUBMITTING YOUR WORK |
---|---|---|
Reading Assignment: Chapter 9 | Errera & Brown | No submission |
Mini-lecture: Pricing - Physical Natural Gas & Crude Oil | Mini-lecture: Pricing - Physical Natural Gas & Crude Oil page | No submission |
Lesson 6 Activity | Lesson 6 Activity page | No submission |
Discussion forum participation | Course Blog | Submitted through the course blog |
If you have any questions, please post them to our Questions? discussion forum (not e-mail), located under the Communicate tab in ANGEL. The TA and I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate.
Reading Assignment:
Read Chapter 9 of Errera & Brown in preparation for next week's Lesson 7. Only pages 143-149 (up to "Current Status of Energy Futures Contracts") and, page 166, starting with "Delivery Methods" through page 168.
Even though the prices of energy "futures" influence the physical markets, prices are negotiated outside the infamous and chaotic trade floors of the exchanges. Buyers and Sellers, looking at their supply and demand situations, make pricing decisions daily and actually buy and sell the physical commodities. The results of these trades are reported in industry publications and become market indicators for the physical "cash" market.
In Lesson 7, we will learn about the financial energy commodity markets.
While watching the Mini-Lecture, keep in mind the following key points and questions:
Familiarize yourself with one of the industry publications that reports physical, cash prices for natural gas. Inside FERC, Gas Daily and, OPIS do not allow their pubications to be copied unless you have a subscription and receive prior permission. However, you can access the latest prices from the Natural Gas Intelligence website, http://intelligencepress.com/features/intcx/gas/ [1]. These come directly from the electronic trading platform The Intercontinental Exchange (ICE). They are actual transactions for physical natural gas trades at the specified locations. ICE is based in Atlanta, GA. and they also own the International Petroleum Exchange (IPE) in London.
Key Observations for the Natural Gas Intelligence website:
1) Notice the column titles:
2) Notice the prices at some of the key areas around the country:
In this lesson, we addressed the physical cash marketplace that, for the most part, deals with the "here and now." In the next lesson, we will delve into the financial "futures" markets, where commodity prices can be obtained for future months and years.
You have reached the end of Lesson 6. Double-check the list of requirements on the first page of this lesson to make sure you have completed all of the activities listed there before beginning the next lesson. (To access the next lesson, use the link in the "Course Outline" menu at left.