The latest natural gas transaction data from the Federal Energy Commission (FERC) shows the natural gas market is increasingly relying on published index prices for transacting physical volumes for day-ahead and month-ahead deliveries. Index prices — volume-weighted averages of all eligible prices reported to index publishers by location — are considered representative of the market and mitigate some of the perceived price risk associated with “fixed-price” deals, in which the price is independently negotiated between counterparties. But in order to make their indices representative and grounded in market reality, publishers — or price reporting agencies (PRAs) — rely strictly on prices from those independent fixed-price deals to set the index in the first place. As more of the deals done are based on index, what happens to the index itself? Today, we continue our review of natural gas transactional data and what it says about how the market is evolving.
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