MORE NATURAL GAS TRADING TERMS

MORE NATURAL GAS TRADING TERMS

AFFILIATED COMPANY
A company that is either directly or indirectly controlled and/or owned by another firm or holding company.

ALTERNATIVE FUEL CAPACITY
The on-site availability of apparatus to burn fuels other than gas.

BASE PRICE
The stated value of natural gas (usually at the wellhead) before any imposition of taxes, gathering, compression, or other charges.

BEST EFFORTS
A contractual agreement in which the seller (or transporter) agrees only to supply or deliver natural gas on an "as available" basis and is not to be held responsible for any disruption in agreement regardless of the circumstances.

BTU
Abbreviation for British Thermal Unit. The quantity of heat necessary to raise the temperature of 1 pound of water degree Fahrenheit at a specified temperature and pressure (from 59° Fahrenheit to 60° Fahrenheit at an atmospheric pressure of 29.92 inches of mercury).

BURNER TIP
The generic term commonly used to indicate the ultimate point of consumption for natural gas. By definition, it also includes its consumption as a feedstock (an ingredient in products manufactured), and its use in pipeline operations and other overhead activities.

BUYER PROTECTION CLAUSE
Any contract provision that permits the buyer to reduce the price below the current or redetermined price. One of the most common provisions allows the pipeline company to request a redetermination of the price paid by the pipeline once that price is disallowed by the Federal Energy Regulatory Commission (FERC) in ratemaking decisions. Normally, the price will then fall to a level the pipeline is allowed to recover. Other escape clauses, called market-out clauses, deal with the marketability of the gas or the economic conditions regarding sales of gas in certain locations.

BYPASS
The construction of a physical connection between a large end user and a supplier, other than the historic or common suppliers, when the economics dictate; that is, the system supply price of the common supplier is higher than the total price off-system supplies available through the market and separate transport of the purchase via the alternative (bypass) delivery point. The term is sometimes applied by closing down production or moving productions to a lower cost gas area.

CAPTIVE OR CORE CUSTOMER
A natural gas user who cannot readily leave or switch a system supplier due to physical or economic factors, availability of alternative fuels, or lack of fuel-switching capability. Usually, applicable to residential and small commercial users, but can (under certain conditions alternative fuel availability) be applied to large industrial and electric utility users as well.

CARRIAGE
The transportation of natural gas by a pipeline as a separate service for a fee, as opposed to the transportation (movement) of natural gas in which the pipeline has an equity position (owns the gas transported).

CASINGHEAD GAS
Associated and dissolved gas produced along crude oil from oil well completion. (Also called oil well gas).

COAL SEAM GAS
Naturally occurring “occluded natural gas” that is released from entrapment from the fractures, pores, and bedding planes of coal seams. Production techniques include ventilation (diluting methane concentrations with air and venting it to the atmosphere), gob drainage (draining by surface drilling from collapsed areas after coal has been extracted), and predrainage (removing from virgin coalbeds by drilling and stimulation prior to mining).

COMMERCIAL CONSUMPTION
Gas used by non-manufacturing organizations such as hotels, restaurants, retail stores, laundries, and other service enterprises; gas used in agriculture, and other service enterprises; gas used in agriculture, forestry, and fisheries; and gas used by local, State and Federal agencies engaged in non-manufacturing activities.

COMMODITY CHARGES
That portion of the charge or rate based upon the volume of gas delivered.

COMMODITY RATE
Rate per thousand cubic feet (Mcf or therm) to be charged for the number of units delivered.

CONTRACT CONVERSION
Under Federal Energy Regulatory Commission (FERC) Order 500, pipeline sales customers have the option of converting their purchase volumes to open-access transportation services over a 5-year term. The conversion level is contractually negotiated but, in general, the process calls for a 25 percent conversion in the first year, 20 percent conversion in the second year, and so on, until the negotiated conversion level is reached.

CONTRACT DEMANDS
Service contract that provides a distributor (buyer) with a specific volume of gas that typically is larger than the amount specified in general service contracts. The gas charge is usually based on a demand charge and on a commodity charge. In addition, the minimum bill for this type of contract often is equal to the demand charge plus a percentage of the contract volume.

COST OF SERVICE TARIFF
A type of tariff which specifies that a natural gas company (seller) shall be reimbursed for his cost of service, including a specified rate of return on the rate base, as distinguished from the usual tariff which specifies a rate per billing unit contract demand or per unit of sales volume or both.

CURTAILMENT
Reduction of deliveries of natural gas.

DEDICATED RESERVES
The volume of recoverable, salable gas reserves committed to, controlled by, or possessed by the pipeline company and used for acts and services for which both the seller and the company have received certificate authorization from the FERC. Reserves include both company-owned supplies (including owned gas in underground storage), supplies under contract from independent producers, short-term and emergency supplies from the intrastate market. Gas volumes under contract from the other interstate pipelines are not included as reserves, but may constitute part or all of a company's gas supply.

DEFINITE PRICE ESCALATOR CLAUSE
Contract provision that provides for either a fixed dollar price increase or a set percentage increase on a periodic basis.

DELIVERABILITY
The volume of gas that can be produced from a well, reservoir, or field during a given period of time against a certain wellhead back-pressure under actual reservoir conditions, taking into account restrictions imposed by pipeline capacity, contract, or regulatory agencies.

DEMAND CHARGE
That portion of the charge or rate for gas service based upon the customer's demand characteristics.

DEMAND COSTS
Those costs included in the total cost of service which are deemed proper allocated to classes of customers on the basis of use of gas during a peak period.

DEMAND RATE
The rate (per day, per month, or per year) to be charged for each unit of capacity (contract demand) assigned to the customer.

DEREGULATION CLAUSE
A clause in contracts currently governed by regulatory price ceilings to provide a process to reset the price of gas should price controls and regulatory authority cease.

DRY GAS
Natural gas from which the entrained liquids and non-hydrocarbon gases have been removed by lease facilities and/or plant processing. This is the gas that the pipeline purchased, or expects to purchase, to serve its annual requirements.

DRY NATURAL GAS PRODUCTION
Marketed production less extraction loss.

EMERGENCY SERVICE
Service contract for the purchase of gas for resale that is available to a distributor (buyer) on an ad-hoc basis when a crisis exists which threatens the supply of its customers. Service under this schedule can be curtailed or interrupted at the discretion of the natural gas company (seller).

FEDERAL ENERGY REGULATORY COMMISSION (FERC)
The Federal agency with jurisdiction over natural gas pricing, wholesale electric rates, hydroelectric licensing, oil pipeline rates, and gas pipeline certification.

FIRM CUSTOMERS
Customers for whom contract demand is reserved and to whom the natural gas company is obligated to furnish service.

FIRM SERVICES
Service offered to customers (regardless of class of service) under schedules or contracts which anticipate no interruptions. The period of service may be for only a specified part of the year as in off-peak service. Certain firm service contracts may contain clauses that permit unexpected interruption in case the supply to residential customers is threatened during an emergency.

FUEL-SWITCHING CAPABILITY
The ability of an end user to change readily the type of fuel consumed whenever a price or supply advantage develops for an alternative fuel.

INDEPENDENT PRODUCER
Any person who is engaged in the production or gathering of natural gas and who sells natural gas in interstate commerce for resale, but who is not engaged in the transportation of natural gas (other than gathering) by pipeline in interstate commerce.

INTERRUPTIBLE GAS
Gas made available under agreements that permit curtailment or cessation of delivery by the supplier.

INTERSTATE MARKET
Wellhead sales of natural gas to a pipeline subject to Federal controls under the NGPA.

INTERSTATE PIPELINE
A natural gas pipeline company that is engaged in the transportation, by pipeline, of natural gas across state boundaries, and is subject to the jurisdiction of the FERC under the NGPA.

INTRASTATE MARKET
Wellhead sales of natural gas to a purchaser that is not an interstate pipeline.

LDC Local Distribution Company

MAIN LINE SALE
Sales by interstate natural gas pipeline companies made directly to industrial customers or public authorities directly from the companies' transmission lines located outside field or production areas. Main line sales do not include sales made by field or production area transmission lines, intrastate pipeline companies, natural gas distribution companies, or sales by distribution companies that are operated by the pipeline company.

MARKETER
An individual, independent corporation, pipeline, producer, or local distribution company affiliate, engaged in the bringing together of sellers (producers) and buyers of off-system spot-market gas, assisting in negotiations, and arranging transportation and delivery terms. In some instances, marketers buy their own position and broker and arrange transportation for their own sales.

MARKET-OUT CLAUSE
A contract clause that allows the purchaser to reduce the price below the current or redetermined price if the gas is not marketable at that price. The purchaser notifies the seller of an acceptable price. The seller can accept the new price, cancel the contract, or solicit third-party offers and provide "buyer right of first refusal" if the third-party offer is greater than the price specified by the buyer.

MARKET-PRICED GAS (MARKET CLEARING PRICE)
Gas purchased (contracted for) and priced in an open market of offerers and bidders subject to supply and demand equilibrium.

MINIMUM COMMODITY BILL
A charge that requires the purchaser to pay the full commodity charge for a specified percentage of contracted quantities whether or not the specified amount of gas is actually taken.

MOST-FAVORED-NATION CLAUSE
This clause ties the contract price to the rates paid in other contracts. The contracts normally specify the geographic area to be taken into consideration, and that area can vary from a county, state or other potential subdivision, field, basin, or other geologic boundaries within or beyond state boundaries. Most contracts mention that only recent contracts for like quantity, quality, or contract terms can be taken into consideration. Included under this type of clause are:

	Highest contract price paid by buyer from same producing area
	Highest contract price from same producing area paid by any pipeline
	Average of highest contract prices from the same producing area

Most of these contracts are three-party most-favored-nation types, meaning that any prices paid by interstate pipelines in an area are to be used. Others are two-party, which means the pipeline limits the contracts to be considered to contracts it alone has written recently.

OFF-PEAK GAS
Gas supplied during periods of relatively low system demands as specified by the supplier.

OFF-PEAK PERIOD
The period during the day, week, month, or year when the load being delivered by a gas system is not at or near the maximum volume delivered by the system.

OFF-PEAK SERVICE
Service made available on special schedules or contracts, but only for a specified part of the year during the off-peak periods.

OFFSHORE
Any area in the Federal Offshore: 3 miles or more offshore, except 10 miles or more offshore Texas. A well can be completely under water, miles from land (in State water), and still be classified as an onshore well.

OPEN ACCESS TRANSPORTATION
The contract carriage delivery of non-system supply gas on a non-discriminatory basis for a fee. Generally subject to transportation tariffs which more often than not are on an interruptible service basis on first serve capacity usage.

PEAK OR PEAK LOAD
The maximum consumer-demand for gas on a system during a specified interval: hour, day, week, month, or year.

PEAKING SERVICE
Service contract which entitles a distributor (buyer) to a certain quantity of gas that is delivered at the distributor's request. This type of service is usually available only during the winter months and is generally limited to buyers who are already purchasing gas under contract demand or general service contracts.

RATE BASE
The original cost of plant used for gas service less contributions in aid of construction and reserves for depreciation, depletion, and amortization applicable to the plant plus an allowance for working capital. The rate of return is applied to the rate base to determine the amount of return which is intended to cover interest on debt, preferred stock dividends, and appropriate earnings on common stock equity.

RATE SCHEDULE
The rates, charges, and provisions under which service is supplied to the designated class of customers. Also referred to as a service classification.

SEASONAL SERVICE
Service contract which provides gas deliveries to a distributor (buyer) during a specified part of the year (usually the winter months). This type of service contract contains a specific contract quantity and generally includes a full minimum bill. Additionally, purchasers who use this type of service usually must be covered under a contract demand or general service agreement.

SERVICE AGREEMENT
An agreement between a natural gas company and a gas purchaser specifying the service to be rendered, area to be served, maximum obligation to deliver, delivery points, delivery pressure, applicable rate schedules by reference to the tariff, effective date and term, and identification of any prior agreements being superseded.

SPOT MARKET
An open market of buyers and sellers bidding freely for available supplies of a commodity. In the natural gas market, this generally represents excess deliverability available on a short-term contract basis (usually less than a year) subject to price negotiation.

SYSTEM SUPPLY
Gas supplies purchased, owned and sold by the supplier or local distribution company to the ultimate end user. System gas is subject to Federal Energy Regulatory Commission (FERC) or State tariff and is generally sold under long-term (contract) conditions.

TAKE-OR-PAY
Amount of gas required to be purchased even if it has not been physically delivered. Some percentages are based on minimum daily quantities, annual quantities, or minimum contract quantities. Take-or-pay quantities may change over time under initial provisions of the contract in an amendment to the contract.

THRESHOLD VOLUME
That volume of gas that must be taken to make the minimum bill provision inconsequential. That is, there would be no difference in the bills for gas with or without the minimum bill provision.

TRANSPORTATION PROGRAM
A carriage program whereby the pipeline agrees to transport gas for the client for a fee and subject to various levels of service, but usually on an interruptible basis. Contracts may be either short- or long-term arrangements.

UTILIZATION FACTOR
A ratio of the maximum demand of a system or part of a system to the rated capacity of the system or part of the system under consideration.

VARIABLE COSTS
All costs included in the cost of service which fluctuate with the volume of gas passing through the system.

WACOG (WEIGHTED AVERAGE COST OF GAS)
The total cost of all gas purchased by the pipeline/distributor during a base period divided by the system throughput during the same period. This rate, plus application of any pending surcharge adjustments, serves as the basis on which the system tariff rates are computed and made effective.

WELLHEAD PRICE
The price received by the oil or gas producer for sales at the well.

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Natural Gas Market Report Glossary
(compliments of Sprague Energy)

ACCESS - An Internet-based electronic trading system operated by the NYMEX. ACCESS trading opens Monday through Thursday at 3:15 PM and runs through 9:50 AM the following morning. The Sunday ACCESS session opens at 7:00 PM and runs through 9:50 AM Monday morning.

Algonquin (AGT) - Algonquin Gas Transmission - A regional interstate natural gas pipeline system that transports natural gas from pipeline interconnects in New Jersey and southeastern New England to major markets in New England. Algonquin is owned by Duke Energy Corporation.

API - The American Petroleum Institute, an industry advocacy group established in 1919 to promote the interests and development of the petroleum industry and to coordinate the industry's interactions with the government.

Backwardation - A market situation in which prices in succeeding delivery periods are progressively lower than in the nearest delivery period. Also known as an "inverted market." The opposite of backwardation is contango.

Basis - Short for "basis differential," basis is the difference in the value of an underlying commodity between different physical locations and/or different points in time. Basis is most often traded in the form of swaps. By swapping the price of a commodity at one physical location for the price at a different location, traders can capture the basis differential between those two points.

BCF - One Billion Cubic Feet - One BCF is one billion cubic feet of natural gas at standard distribution pressure of 14.73 pounds per square inch and 60° Fahrenheit.

Bid Week – The five business days immediately preceding the first of the month. During bid week, all financial positions must be closed out. Financial positions serving as hedges for physical natural gas transactions must be converted into physical supplies. Physical trading activity during bid week is the basis of the price index numbers published in Inside F.E.R.C.’s Gas Market Report.

Book Out – A trade where a sale or purchase is offset by a subsequent transaction with an equal and opposite volume prior to physical delivery. The two transactions need not be at the same price and if they are not, money will change hands to settle the difference.

BTU - British Thermal Unit - The amount of energy required to raise the temperature of one pound of water by one Fahrenheit degree. One BTU is equivalent to 252 calories, 0.293 watt-hours, or 1,055 joules.

Cash Trading - The trading of physical natural gas during the month in which delivery will be taken. The majority of cash trading is for next day gas and is conducted during the morning hours prior to and shortly after the opening of the NYMEX day session. Cash trading for Saturdays, Sundays and Mondays (as well as Tuesday, in the event of a Monday holiday) is done on Friday mornings unless the month ends on a weekend, in which case cash trading for the final days of the current month occurs on Thursday and trading for the first of the following month occurs on Friday.

CCF - One Hundred Cubic Feet - One CCF is one hundred cubic feet of natural gas at standard distribution pressure of 14.73 pounds per square inch and 60° Fahrenheit.

City Gate - The point of demarcation between a natural gas transmission pipeline and the local distribution company. The city gate is the most common point of sale in the retail natural gas business, since transfer of control and risk of loss between the marketer (who is also typically the shipper of record on the pipeline) and the LDC occurs at this point.

CL - The base ticker symbol for the NYMEX West Texas Intermediate Crude Oil futures contract. One crude oil futures contract represents 1,000 barrels (42,000 gallons) of product. In addition to the base symbol, the ticker symbol for a NYMEX futures contract contains a letter indicating the month and a digit indicating the year. The letters corresponding to the months are F - Jan, G - Feb, H - Mar, J - Apr, K - May, M - Jun, N - Jul, Q - Aug, U - Sep, V - Oct, X - Nov, Z - Dec. The digit indicating the year is always the last digit of the year number.

Columbia (TCO) - Columbia Gas Transmission - A regional interstate natural gas pipeline system that transports natural gas from pipeline interconnects in Appalachia to markets in Maryland, Ohio, Pennsylvania, upstate New York and Virginia. TCO is divided into 10 zones which are further divided into dozens of individual market areas. TCO is owned by NiSource.

Contango - A market situation in which prices in succeeding delivery periods are progressively higher than in the nearest delivery period. The difference in price between corresponding present and future delivery periods is referred to as the "carry" in the market. The opposite of contango is backwardation.

Cooling Degree Day (CDD) - An indicator of space cooling demand. The cooling degree days for a single day equal the average of the highest hourly temperature and the lowest hourly temperature for the day minus 65 degrees Fahrenheit, if greater than or equal to zero.

DOE - The U.S. Department of Energy - A cabinet-level federal agency created in 1977 to replace the Federal Energy Administration. The Department manages national energy policy, nuclear power and nuclear weapons programs, and the national energy research labs.

Dominion (DTI) - Dominion Transmission, Inc. - A regional interstate natural gas pipeline system that transports natural gas from pipeline interconnects in Appalachia to markets in Ohio, Pennsylvania, upstate New York and West Virginia. For trading purposes, Dominion is divided into north markets that include the upstate New York utilities and south markets that include Ohio, most of Pennsylvania and West Virginia. Dominion owns and operates the largest collection of underground natural gas storage assets in the U.S. Dominion is owned by Dominion Resources.

DT - Dekatherm - One dekatherm of natural gas contains one million BTU (one MMBTU) of energy. One dekatherm is equal to 10 therms.

EIA - Energy Information Administration - An agency within the U.S. Department of Energy. EIA provides energy data, forecasts and analyses.

EIA Weekly Natural Gas Storage Report - A weekly report that estimates the total working natural gas held in underground storage facilities in the continental U.S. based on a survey of major storage facility operators. Inventories are reported separately for three separate regions: the west consuming region, the east consuming region and the producing region. The report is normally released every Thursday morning at 10:30 AM eastern time.

EIA Weekly Petroleum Status Report - A weekly report that estimates a variety of activity in the U.S. petroleum industry. The most closely watched numbers are the petroleum stocks, which indicate the total quantities of crude oil, distillate fuel oil, motor gasoline, and other petroleum distillates held in domestic storage. The report is normally released every Wednesday morning at 10:30 AM eastern time.

Empire State (ESP) - Empire State Pipeline - An intrastate natural gas pipeline that transports natural gas from a Canadian import point in Chippawa, New York to markets in upstate New York. Empire State is owned by National Fuel Gas.

FERC - Federal Energy Regulatory Commission - An independent federal agency that regulates the interstate transmission of natural gas, oil and electricity. FERC also regulates the storage of natural gas and the importation of liquefied natural gas. The commission is composed of up to five sitting commissioners that are appointed by the President and must be confirmed by the Senate. The commission is staffed by economists, engineers, attorneys, policy experts and administrative law judges who analyze filings made by industry participants and advise the commission on its decisions.

Force Majeure - literally, "greater force." Force majeure clauses, standard in most commercial contracts, excuse one or both parties from liability if an extraordinary event beyond the control of the parties prevents one or both parties from fulfilling their obligations under the contract. Force majeure clauses are intended to excuse a party only if the failure to perform could not be avoided by the exercise of due care.

Forward Power Prices - Price for power traded on over the counter exchanges like ICE for delivery in future months.

Fuel Loss - A fixed percentage of the natural gas received by a pipeline or LDC that is "lost" between the receipt point and the delivery point. For pipelines, the natural gas is typically used to fuel natural gas combustion motors that drive the compressors that maintain pressure on the pipeline. For LDCs, fuel loss compensates for gas lost to leaks, theft and faulty measurement. Fuel loss is generally expressed as a percentage of the quantity received into the pipeline or LDC. To calculate fuel loss based on the delivered quantity, divide the delivered quantity by 1 minus the fuel loss percentage, then subtract the delivered quantity.

Futures - A derivative transaction between two counterparties wherein the seller agrees to fix the price for a predetermined quantity of an underlying commodity, security, bond or currency in a specified delivery period. The buyer becomes "long" the futures position while the seller becomes "short." Futures contracts are generally liquidated (i.e. - traders that are long futures sell their positions to traders that are short) prior to contract expiration, and physical delivery of the underlying asset is extremely rare. Futures are traded exclusively on regulated exchanges such as the NYMEX and traders settle up with the exchange each day based on the market value of their positions.

Gas Daily - A natural gas industry trade journal published each business day by Platts. In each issue, Gas Daily publishes the results of a phone survey of traders and other industry participants. The survey provides indicative prices for next day physical natural gas delivered to a large number of trading points throughout the continental U.S. For each point, Gas Daily publishes an absolute high and low price, a common high and low price and a midpoint price. When traders refer to the "Gas Daily index" price, they are generally referring to the midpoint price.

Gathering – The process of collecting natural gas flowing from numerous wells and bringing it together into pooling areas where it is received into transmission pipelines. Gathering systems are small systems of mostly low-pressure pipe that connect the numerous wells dotting producing fields to the interstate transmission system. The gas carried by gathering lines is often “wet,” which means that it has not yet been treated to remove water, oxygen, carbon dioxide and other impurities. Gathering systems are typically state-regulated as they do not cross state boundaries.

Granite State (GSGT) - Granite State Gas Transmission - A regional interstate natural gas pipeline system that transports natural gas from an interconnect with Tennessee in Massachusetts to markets in coastal New Hampshire and Maine. Granite State is owned by NiSource.

Heating Degree Day (HDD) - An indicator of space heating demand. The heating degree days for a single day equal 65 degrees Fahrenheit minus the average of the highest hourly temperature and the lowest hourly temperature for the day, if greater than or equal to zero.

Henry Hub - A major pipeline interconnect point located in Louisiana. The Henry Hub is operated by Sabine Pipe Line, LLC and interconnects with 16 separate interstate and intrastate pipelines. The Henry Hub is the designated delivery point for the NYMEX Natural Gas futures contract. The Henry Hub is also a highly liquid trading point, with numerous buyers and sellers of both physical natural gas and financial derivatives. Platts publishes both a monthly and a daily index price for the Henry Hub in Inside FERC and Gas Daily, respectively.

Henry Hub Natural Gas Futures Contract - The standard natural gas futures contract traded on the NYMEX. Each contract is for a fixed quantity of 10,000 MMBTU, deliverable at the Henry Hub in Louisiana. Contracts are traded on each of 72 future delivery months. At the end of trading on the third-to-last business day of each month, the nearest (prompt) month contract expires and trading commences for the new 72nd month of the forward strip.

HO - The base ticker symbol for the NYMEX New York Harbor Heating Oil futures contract. One heating oil futures contract represents 1,000 barrels (42,000 gallons) of product. In addition to the base symbol, the ticker symbol for a NYMEX futures contract contains a letter indicating the month and a digit indicating the year. The letters corresponding to the months are F - Jan, G - Feb, H - Mar, J - Apr, K - May, M - Jun, N - Jul, Q - Aug, U - Sep, V - Oct, X - Nov, Z - Dec. The digit indicating the year is always the last digit of the year number.

HU - The base ticker symbol for the NYMEX New York Harbor Unleaded futures contract. One gasoline futures contract represents 1,000 barrels (42,000 gallons) of product. The HU contract is for reformulated gasoline which generally contains the additive MTBE, and is being discontinued as MTBE is gradually phased out. The January 2007 HU contract will be the last one to trade on the NYMEX. The HU contract is being replaced with the RB contract, which is for gasoline blendstock that does not contain MBTE. In addition to the base symbol, the ticker symbol for a NYMEX futures contract contains a letter indicating the month and a digit indicating the year. The letters corresponding to the months are F - Jan, G - Feb, H - Mar, J - Apr, K - May, M - Jun, N - Jul, Q - Aug, U - Sep, V - Oct, X - Nov, Z - Dec. The digit indicating the year is always the last digit of the year number.

ICAP Natural Gas Inventory Options - An over-the-counter option traded each week on the EIA Natural Gas Storage Report inventory level. The option is offered by ICAP, an electronic broker of fixed-income securities, and is financially settled through the NYMEX. The options are bought and sold via an "auction" wherein the most popular "strike prices" - which correspond to the change in the overall storage levels - get bid up to the highest option premiums. The ICAP auction is watched by many industry participants as an indicator of the likely inventory levels to be reported by EIA.

"In the Money" - In options trading parlance, a contract that could be exercised for a gain at current market prices. If January natural gas futures are currently trading at $10, for example, a $9 January call option is "in the money" because it could be exercised for a $1 gain. The opposite of "in the money" is "out of the money."

Inside FERC's Gas Market Report (IFGMR) - A natural gas industry trade journal published each month by Platts. In each issue, IFGMR publishes the results of a phone survey of traders and other industry participants. The survey provides indicative prices for physical monthly baseload supply delivered to a large number of trading points throughout the continental U.S. For each point, IFGMR publishes a high-low range and an index price.

Intercontinental Exchange (ICE) - An electronic trading exchange for energy products and precious metals derivatives. ICE is not a regulated exchange in the same sense as the NYMEX. Trades are financially settled between counterparties, not between counterparties and the exchange. This requires counterparties to independently establish and monitor creditworthiness with each other before trades can be conducted.

Iroquois (IGT) - Iroquois Gas Transmission - A regional interstate natural gas pipeline system that transports natural gas from a Canadian import point in Waddington, New York to interconnects and markets in southeastern New England and Long Island. Iroquois is jointly owned by six energy companies, with nearly 90% of its ownership held between Dominion Resources, KeySpan Energy and TransCanada.

ISO New England (ISO-NE) - A regional transmission organization (RTO) that coordinates the generation and transmission of electric power in the states of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.

Last Day's Settlement Price (LDS) - The final price at which the financial settlement of all open futures contracts for a particular commodity and delivery month occurs. The price determined by the NYMEX is actually an average of all trading activity in the last 30 minutes of trading. This is done to prevent an individual or a small group of traders from engaging in manipulation of the price of a futures contract in the waning moments of trading.

Line Pack - The ability of a natural gas pipeline to effectively "store" small quantities of gas on a short-term basis by increasing the operating pressure of the pipe. Most pipelines use line pack as a resource to help manage the load fluctuations on their systems, building up line pack during periods of decreased demand and drawing it down during periods of increased demand.

Liquefied Natural Gas (LNG) - Natural gas that has been cooled and compressed into a liquid state in order to more efficiently transport it from producing regions to market. Most LNG is produced in oil-rich, equatorial countries with little use for natural gas for space heating, such as Algeria, Trinidad and Qatar. It is then transported by ship to import facilities where it is stored and ultimately vaporized and delivered into the pipeline system. LNG is expensive to produce on a commodity basis but is valuable as a source of peaking gas since it can be delivered into constrained market areas without requiring large investments in pipeline capacity back to producing regions.

Local Distribution Company (LDC) - The entity responsible for receiving natural gas or power from the wholesale transmission system and distributing it to end use customers. LDCs are state-jurisdictional entities whereas most transmission providers are federal jurisdictional. In addition to local delivery of energy, the LDC is typically also responsible for providing metering and billing services. In the electric power industry, LDCs are often called "Distribution Companies" or "DISCOs" for short.

M3 - Texas Eastern Market Area 3 - A rate zone on Texas Eastern Transmission that includes delivery points serving metro New York, New Jersey and eastern Pennsylvania. M3 is a highly liquid trading point, with numerous buyers and sellers of both physical natural gas and financial derivatives. Platts publishes both a monthly and a daily index price for M3 in Inside FERC and Gas Daily, respectively.

Maritimes (M&NP) - Maritimes & Northeast Pipeline - A regional interstate natural gas pipeline system that transports natural gas from a Canadian import point on the Maine-New Brunswick border to markets along the Maine and New Hampshire seacoasts and interconnects with Tennessee and Algonquin in eastern Massachusetts. Maritimes is jointly owned by Duke Energy, Emera and ExxonMobil.

MCF - One Thousand Cubic Feet - One MCF is one thousand cubic feet of natural gas at standard distribution pressure of 14.73 pounds per square inch and 60° Fahrenheit.

MMBTU - Million British Thermal Units

MMS - The Minerals Management Service - A bureau in the U.S. Department of the Interior that manages the nation's natural gas, oil and other mineral resources on the outer continental shelf.

MOC – Market On Close – An order placed with a broker of securities or commodities where the trader requests that the purchase or sale be made at the final closing price for the day’s trading session. Brokers will make an attempt to honor MOC orders, but in extremely volatile markets they may not be able to.

Moving Average - Calculations that smooth the price action in a commodity or security in order to reveal underlying trends. The 5 day simple moving average, for instance, is a series of values that equal the straight average of the preceding 5 daily settlement prices for each day. A weighted moving average places a greater weight on more recent periods than on those further in the past.

MW - Megawatt - A megawatt is a unit of electrical power equal to one million watts. One megawatt of generation capacity can provide enough electricity to power 800 average North American homes.

Natural Gas - An odorless, colorless hydrocarbon gas composed of over 99% pure methane. At 14.73 pounds per square inch and 60° Fahrenheit, one cubic foot of natural gas contains approximately 1,030 BTU of recoverable energy.

National Energy Board (NEB) - NEB is the FERC's Canadian counterpart. NEB is responsible for regulating the construction, operation and rates (tolls) of inter-provincial and international pipelines.

New York Independent System Operator (NYISO) - A regional transmission organization (RTO) that coordinates the generation and transmission of electric power in the state of New York.

Next Day Peak Power Price - Prices for power used or supplied during the following day's peak period. The peak period is commonly defined as "5X16", which means Monday through Friday from 7:00 AM through 11:00 PM.

NG - The base ticker symbol for the NYMEX Henry Hub Natural Gas futures contract. One natural gas futures contract represents 10,000 MMBTU of product. In addition to the base symbol, the ticker symbol for a NYMEX futures contract contains a letter indicating the month and a digit indicating the year. The letters corresponding to the months are F - Jan, G - Feb, H - Mar, J - Apr, K - May, M - Jun, N - Jul, Q - Aug, U - Sep, V - Oct, X - Nov, Z - Dec. The digit indicating the year is always the last digit of the year number.

NYMEX - New York Mercantile Exchange - A major trading exchange for commodities futures and options. The NYMEX is the largest commodity exchange in the world. Natural gas, petroleum products, electric power, coal and precious metals are all traded.

OCO – One Cancels Other – Two or more trades placed with a broker where one trade cancels the other(s) if it is executed. The most common example would be a limit order with a stop loss, where a trader would set a price objective for selling above the current market price but also specify a floor price below which he or she is no longer willing to continue to lose money. In the event that either trade is made, the other trade is automatically canceled so the trader doesn’t accidentally sell twice the intended volume.

Option - A derivative transaction between two counterparties which entitles the buyer to purchase (call option) or sell (put option) a fixed quantity of an underlying commodity, security or derivative within a specified time period at a fixed price in return for a one-time premium payment. The fixed price is referred to as the "strike price" of the option and the end of the specified time period is referred to as the "expiration date" of the option. Exchange-traded options are limited to options on futures or stocks. For over-the-counter options, the underlying entity can be practically anything: physical commodities, futures, swaps ("swaptions"), or other options ("embedded options").

Oscillators - In layman's terms, oscillators are based on the principle that prices are likely to "consolidate" or "regroup" after a sustained run either up or down. Technical analysts use oscillators to describe the recent price activity of a commodity or security in mathematical terms, relative to a fixed range of possible values. Oscillators show an Overbought signal when a commodity has gone predominantly up for a period of time, indicating that the commodity is due for a pull-back. Oscillators show an Oversold signal when a commodity has gone predominantly down for a period of time, indicating that the commodity is due for a rebound. Examples of commonly used oscillators include the Relative Strength Index (RSI), Rate of Change (ROC) and Moving Average Convergence/Divergence (MACD).

"Out of the Money" - In options trading parlance, a contract that would be worthless if it expired at current market prices. If January natural gas futures are currently trading at $10, for example, an $11 January call option is "out of the money" because exercising the options would result in a $1 loss. The opposite of "out of the money" is "in the money."

Overbought/Oversold - See Oscillators.

PIRA Energy Group - PIRA - A New York based energy consulting, forecasting and analysis firm. PIRA produces a number of widely-read reports on natural gas production, markets, storage and pricing.

PJM Interconnection - A regional transmission organization (RTO) that coordinates the generation and transmission of electric power in all or part of the states of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.

Portland (PNGTS) - Portland Natural Gas Transmission System - A regional interstate natural gas pipeline system that transports natural gas from a Canadian import point near Pittsburg, New Hampshire to markets in southern Maine and New Hampshire, and terminates at an interconnect with Tennessee in Dracut, Massachusetts. PNGTS is jointly owned by GazMétro and TransCanada.

RB - The base ticker symbol for the NYMEX New York Harbor Reformulated Gasoline Blendstock futures contract. One gasoline futures contract represents 1,000 barrels (42,000 gallons) of product. The RB contract was introduced as a replacement for the HU contract, which was for reformulated gasoline that generally contained the additive MBTE. Reformulated gasoline blendstock is mixed with ethanol to produce the motor gasoline sold in most service stations. In addition to the base symbol, the ticker symbol for a NYMEX futures contract contains a letter indicating the month and a digit indicating the year. The letters corresponding to the months are F - Jan, G - Feb, H - Mar, J - Apr, K - May, M - Jun, N - Jul, Q - Aug, U - Sep, V - Oct, X - Nov, Z - Dec. The digit indicating the year is always the last digit of the year number.

Regional Transmission Organization (RTO) - An independent governing body that coordinates power generation and transmission within an integrated regional market. The RTO projects the hourly load requirements for the markets it serves, collects bids from generators, and dispatches plants to provide energy, reserve capacity and power regulation services. Based on the bids received, the RTO determines an hourly price for each service. The market-clearing price is charged to all net users of the service and paid to all net suppliers. The RTO also serves as a clearinghouse for payments between generators, utilities and end users.

Resistance - In technical analysis of commodities or securities, a price level where new selling is likely to come in and dampen any further rise. When a market repeatedly rallies to a particular level and then declines, the market is said to be "offering resistance" at that level. In classic technical analysis, when a resistance level is violated - i.e., prices break through the resistance level and trade above it - it tends to become a support level against downward price movement.

Shut-in - The disruption of natural gas supply at the wellhead. Most shut-ins are weather-related, such as when the crews of offshore producing platforms must be evacuated due to an approaching hurricane.

Spread - In trading parlance, the difference in price between equivalent quantities of two commodities, securities, bonds or currencies at two specific physical locations and/or points in time. A spread can be for the same commodity and location, as in the summer-winter spread for New England natural gas, or can be cross-commodity, as in the crack spread between the price of crude oil and the price of refined products.

Support - In technical analysis of commodities or securities, a price level where new buying is likely to come in and stem any further decline. When a market repeatedly declines to a particular level and then rallies, the market is said to be "offering support" at that level. In classic technical analysis, when a support level is violated - i.e., prices break through the support level and trade below it - it tends to become a resistance level to upward price movement.

Swap - A derivative transaction between two counterparties who agree to exchange financial rates or prices for a fixed quantity of an underlying commodity, security, bond or currency. Energy swaps are typically purchased in order to manage the risk of delivering physical energy. For instance, a trader might pay a premium for a swap that exchanges the index price for January natural gas delivered to Transco zone 6 New York for the January NYMEX futures settlement price. This allows the trader to "lock in" the basis cost between gas delivered to the Henry Hub and gas delivered to New York at the premium paid for the swap. Swaps are financially settled transactions, meaning that traders exchange cash rather than physical energy when the final value of the swap is determined.

TCF - One Trillion Cubic Feet - One TCF is one trillion cubic feet of natural gas at standard distribution pressure of 14.73 pounds per square inch and 60° Fahrenheit. The total annual consumption of natural gas in the continental U.S. is approximately 22 TCF.

Tennessee (TGP) - Tennessee Gas Pipeline - A major interstate natural gas pipeline system that transports natural gas from producing regions along the U.S. gulf coast and a Canadian import point near Niagara Falls, New York, to major markets in the U.S. Northeast. Tennessee zone 6 includes delivery points throughout New England. Tennessee is owned by El Paso Corporation.

Texas Eastern (TETCO) - Texas Eastern Transmission - A major interstate natural gas pipeline system that transports natural gas from producing regions along the U.S. gulf coast to major markets in the U.S. Northeast. Texas Eastern Market Area 3 (TET-M3) includes delivery points serving metro New York, New Jersey and eastern Pennsylvania. Texas Eastern is owned by Duke Energy Corporation.

TH - Therm - One therm of natural gas contains 100,000 BTU of energy.

TransCanada (TCPL) - TransCanada Pipeline - A major Canadian natural gas pipeline system the transports natural gas from producing regions in Alberta to markets across the Canadian provinces and the northern U.S. TransCanada supplies large volumes of natural gas to the northeastern U.S. via Tennessee (Niagara Falls), Empire State (Chippawa), Iroquois (Waddington) and PNGTS (East Hereford).

Transco - Transcontinental Gas Pipeline - A major interstate natural gas pipeline system that transports natural gas from producing regions along the U.S. gulf coast to major markets in the U.S. Northeast. Transco zone 6 is divided into two distinct markets: zone 6 New York includes New York City delivery points as well as Public Service Electric & Gas in New Jersey; zone 6 Non-New York includes delivery points in New Jersey and eastern Pennsylvania. Transco is owned by The Williams Companies.

Transmission - The segment of the energy industry responsible for receiving wholesale energy from producers/generators and delivering it to local distribution companies or large end users. In the power industry, transmission is provided via high-voltage lines (69 kV and up). In the natural gas industry, transmission is provided via high pressure pipelines.

Wellhead – The point at which natural gas is produced, literally at the head of the well. More generally, the term “wellhead price” is used to refer to the price of natural gas in the producing region. EIA reports a “National Wellhead Price” which is an average of the market prices of natural gas in various producing regions.

Zone 6 N.Y. - Transcontinental Zone 6, New York - A rate zone on Transcontinental Gas Pipeline that includes delivery points serving New York City and Public Service Electric & Gas in New Jersey. Zone 6 N.Y. is a highly liquid trading point, with numerous buyers and sellers of both physical natural gas and financial derivatives. Platts publishes both a monthly and a daily index price for Zone 6 N.Y. in Inside FERC and Gas Daily, respectively.