FERC on Thursday took steps to make clear that companies can safely report both daily and bidweek natural gas transactions to price reporting agencies (PRA), such as Natural Gas Intelligence.
The Federal Energy Regulatory Commission said the proposals would clarify requirements for those that report prices, addressing long-standing perceptions of regulatory risk.
Specifically, the Commission proposed to allow market participants that report transaction data “to report either or both of their non-index based next-day natural gas transactions and non-index based next-month natural gas transactions” to PRAs.
In addition, FERC proposed amending its regulations to codify the “safe harbor” provision in the Commission’s policy statement on natural gas and electric price indices. Under the safe harbor rule, companies that report transactions to PRAs consistent with FERC procedures “are afforded a rebuttable presumption that their transaction data is accurate, timely and submitted in good faith.”
The revisions would not modify that existing policy but instead add a layer of clarity to “promote voluntary reporting of wholesale natural gas and electricity transactions” by “alleviating market participant concerns that the safe harbor policy is not binding on the Commission,” FERC said.
Comments on both proposals are due 90 days after publication in the Federal Register. FERC last called for comments on reporting volumes at its technical conference in 2017.
In its role as regulator, FERC has since 2008 conducted an annual survey of companies that buy and/or sell at least 2.2 million MMBtu of U.S. natural gas in any particular year to fill out a Form 552 questionnaire, which the Commission uses to monitor the health of natural gas market price transparency.
NGI’s calculations of the individual submissions available from FERC in mid-July showed at the time, reported bidweek volumes for 2019 totaled about 4,250 TBtu, and day-ahead spot reported transaction volumes were estimated at nearly 5,820 TBtu. Both figures have likely increased somewhat since then, as a handful of companies reported a bit later than normal this year, largely because of the pandemic.
The amount of data reported to PRAs has declined since the financial collapse of 2008 that prompted a number of banks to diminish or eliminate their energy trading desks. However, in recent years, the amount of data reported to PRAs has leveled off, prompting analysts to suggest that such an asymptotic decline indicates there is a base level of fixed price transactions that will always support these price indexes.
Meanwhile, FERC staffers said, the use of indexes has increased, with traded volume of natural gas transactions that referenced natural gas indexes jumping from 69% of the traded volumes in the U.S. physical natural gas market in 2010 to 82% in 2019.
“Natural gas price Indexes are a bit of a victim of their own success,” said NGI’s Executive Publisher Dexter Steis. “The market votes with its actions. It is precisely because there is so much trust in these price index data that the market chooses to base such a large percentage of their deals on these indexes. This, in turn, reduces the amount of data that can be used to create the Indexes.
“Is roughly 20% of the deals determining the price for the other 80% acceptable? I would suggest the market thinks so,” Steis added. “Or else they would not use these indexes so much. These are highly sophisticated companies and believe me, they look at this.”
On Thursday, FERC staff members said in a presentation the proposed changes could help reverse the reporting trend and boost pricing transparency for market participants.
“Natural gas markets depend on robust and accurate indices in order to ensure just and reasonable prices,” FERC staffers said. “Natural gas price indices serve as a proxy for the locational cost of natural gas in the daily and monthly trading markets, as many market participants reference natural gas index prices in their physical and financial transactions.”
An estimated 81% of natural gas transactions reported to FERC on Form 552 depend on price indexes, with the rest composed of fixed-price and physical basis deals eligible to be reported to index publishers, according to a presentation at a 2020 Natural Gas Supply Association (NGSA) forum.
Representatives from NGI and S&P Global Platts – another PRA – participated in the July forum. Each said reported volumes only tell part of the transparency story.
NGI’s natural gas price indexes have since 2008 included transaction data from ICE through a protocol that maximizes the amount of relevant data in the company’s indexes. It removes deal reports from ICE that are duplicative of the companies that report directly to NGI.
Platts in 2016 struck an agreement to include the same ICE data in its indexes. NGI and Platts are the only two PRAs with access to the ICE transaction data.
Additionally, anticipated producer consolidation in the aftermath of the coronavirus pandemic could boost reported volumes, NGI’s Patrick Rau, director of Strategy & Research, said during the NGSA forum. He said stronger players could acquire weaker ones, and the former are more likely to report to PRAs.
Growing U.S. liquefied natural gas (LNG) exports – a trend expected to build through 2030 – could also lift reported volumes, according to Rau. While the pandemic forced an interruption in LNG demand earlier this year, export levels have since recovered and reached 9.4 Bcf/d in November, a monthly record. Export volumes have since topped 11 Bcf on several days in December.