The Kansas City Board of Trade has asked the Commodity Futures Trading Commission (CFTC) to approve a natural gas futures and options trading contract for a summer launch. The designated delivery point is the Permian/Waha Hub in West Texas, operated by Valero Transmission Co. Kansas City Board chairman Don Hills says the western gas futures contract is necessary because gas prices differ significantly across the country, due to seasonal weather extremes and the diverse origins of supply. A natural gas contract tied to delivery in West Texas would be more representative of the western U.S. market, and could be arbitraged against the New York Mercantile Exchange (NYMEX) gas futures contract.
Prices under the NYMEX contract, with delivery at Henry Hub, LA, generally reflect Gulf Coast gas supply and Northeast gas demand, explains Mark Prout, Kansas City Board vice president of marketing. But delivered-to-pipeline prices at the Waha interchange were 5 cents below the NYMEX price in February 1993, plunged to 52 cents below in May, then rebounded to 13 cents below the following July, Prout notes.