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| Houston Ship Channel Basis Swap Futures (Platts IFERC) |
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Participants in the natural gas market at the Houston Ship Channel hub in southeast Texas sometimes have the best of two worlds.
The market hub is one of the principal gateways for natural gas destined for markets in Texas, the largest gas-consuming state. It serves a highly concentrated area of large-volume consumers – the heavily industrialized region in the Houston vicinity east to Port Arthur that is rife with chemical plants, refineries, and power generating stations. At the same time, the hub is located in the midst of prolific onshore and offshore gas deposits along the Gulf of Mexico.
The region's industrial gas demand is fairly steady, although the markets can be affected by shifts in weather and the availability of non gas-fired power generation.
The volatility of natural gas prices has given rise to a basis market that is quoted as a differential to the price of the New York Mercantile Exchange, Inc., Henry Hub natural gas futures contract. The Henry Hub futures contract is the benchmark for forward natural gas markets industry-wide because of its liquidity and transparency.
To better help market participants offset their price risk the Exchange provides a Houston Ship Channel basis swap futures contract. The final settlement is calculated as Platts Inside FERC's Gas Market Report Houston Ship Channel index price minus the final settlement price of the Exchange's benchmark Henry Hub natural gas futures contract for the corresponding month on the last trading day. Platts Inside FERC calculates the Houston Ship Channel index price from its monthly bid week survey of buyers and sellers of base-load gas.
The lot size of 2,500 million Btus represents a commonly traded market unit and is one-quarter the size of the Henry Hub futures contract, giving market participants additional flexibility in managing price risk. The contract must be traded in a multiple of the number of calendar days in the month.
All positions will be aggregated and margined according to the value at risk as calculated by the SPAN® system. Cross margining of offsetting positions across markets can result in reduced margin obligations.
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