US Natural Gas Markets

Vincent Kaminski

Voltaire is quoted as saying that should God not exist, it would be necessary to invent him. The same may be said about the US natural gas market from the point of view of an aggressive trader or a speculator. There are many structural features of this market which make it an optimal platform for trading by smart, well-informed and agile traders, but also from time to time by people willing to abuse the system. It is a market whose microstructure can be exploited, but it can also ruin an imprudent person.

This is how we opened the chapter when we started writing the book in 2007. Unfortunately, it is no longer true as far as speculators are concerned – although there is some good news from the point of view of consumers. The prices of natural gas in the US are depressed, volatility is suppressed and locational price differences have been eliminated or significantly compressed. It is difficult to find consenting adults willing to invest in start-up natural gas-oriented hedge funds, as some of our friends have found out. Trading desks in financial institutions are scaling down. The factors behind this rapid change of fortunes are the abundance of natural gas from shale formations