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| SONAT Basis Swap Futures (Platts IFERC) |
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Southern Natural Gas Co., a unit of El Paso Energy, is the major pipeline in the Southeast, with customers in seven states. The supply and market area extends from east Texas across Louisiana, Mississippi, Alabama, and the Gulf of Mexico to Louisiana, Mississippi, Alabama, Florida, Georgia, South Carolina, and Tennessee, including the cities of Atlanta and Birmingham. The pipeline has a capacity of nearly 3 billion cubic feet per day.
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 SONAT basis swap futures contract. The final settlement is calculated as Platts Inside FERC Gas Market Report SONAT 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. Inside FERC calculates the SONAT 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 are 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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