Bayou Celebration Planned For First Natural Gas Futures Trading
Undated (AP) _ When natural gas futures begin trading for the first time ever on Tuesday, the focus will be on the trading pit at the New York Mercantile Exchange but the ceremony will be in the Cajun prairie town of Erath.
Nymex chose Sabine Pipe Line Company’s gas interchange center south of Lafayette in the Louisiana bayous as the designated delivery site for all futures contracts.
The first contract was to be delivered to Sabine’s facility in the town of 2,100 during Tuesday ceremonies attended by officials of Nymex and Sabine, a subsidiary of Texaco.
The Erath facility is a pipeline that transports gas from Louisiana, Texas and the Outer Continental Shelf in the Gulf of Mexico.
Louisiana is the leading natural gas producer in the continental United States and a majority of the state’s large pipelines pass through the jungle of pipes at Erath.
″The selection of Louisiana as the futures delivery point affirms Louisiana’s role as a leader in the natural gas field,″ said Gov. Buddy Roemer.
Natural gas producers hope the move will have the same kind of effect on the industry as oil futures trading did once it began in 1978. Since then, Nymex trading largely has fixed the price of oil, even in the face of price- setting strategies by the Organization of Petroleum Exporting Countries.
″The oil industry has benefited from futures trading and the gas people are hoping for the same thing,″ said Ron Gomez, secretary of the Louisiana Department of Natural Resources.
A futures contract is an obligation to buy or sell a prescribed quantity of goods to be delivered at a future date at a price agreed upon in advance.
Both producers and consumers use futures as a hedge against fluctuating prices, buying or selling them to lock in the prices at which they buy or sell raw goods, eliminating some of their financial risk.
″It can work the same way for gas,″ said Vic Tompkins of the Louisiana Mineral Resources Division. ″But, remember, the futures market involves a lot of gambling. The pit can be like a casino.″
In addition to those wanting to hedge against price fluctuations, futures attract speculators who buy contracts essentially to gamble on future price movements.
The trading of natural gas futures, which first was proposed to the Commodity Futures Trading Commission in 1984, reflects the enormous growth in the spot market for natural gas as federal price controls have been lifted.
Deregulation of the natural gas market began in 1978, and remaining price controls will be lifted by 1993.
Nachamah Jacobovits of Nymex said the exchange doesn’t expect as much speculative dealing in gas as there is in oil. That’s why Sabine is excited about its Henry Hub center in Erath.
The contract with Nymex ″will assist Sabine in achieving its goal of making the Henry Hub the premier location for trading natural gas in the United States,″ said Jagjit S. Yadav of Houston, president of the pipeline company.
″We believe that futures contract trading will encourage the development of a more efficient natural gas market and be of benefit to the natural gas industry and its customers,″ he said.