Future Gas Contracts Will Reflect Supply and Price Risk
✍ Scribed by Whitcomb, M. Glenn
- Publisher
- John Wiley and Sons
- Year
- 2007
- Weight
- 221 KB
- Volume
- 5
- Category
- Article
- ISSN
- 0743-5665
No coin nor oath required. For personal study only.
✦ Synopsis
In previous columns I have discussed the past problems with long-term natural gas sales contracts. The solutions to those problems are still being worked out, and the current market is dominated by short-term contracts.
Price and volume are the two biggest risks in contracting for natural gas. In an over-supplied market so-called spot contracts eliminate the short-term price and volume risk for the buyer but provide no assurance of volume or price coverage for intermediate and longer-term needs.
There is no industry consensus on when the current gas bubble will disappear and a supply-constrained market will emerge. Today many astute buyers are searching for longer-term contract coverage. Negotiations are stalled or have been broken off becuase the parties could not agree on future price and volume terms.
No "correct" general solution exists. In each negotiation, the buyer and seller have their own risk-to-reward