Capstone Energy Services


Changing Energy Market Structures

February 16th, 2011

OMAHA (Capstone Energy Services) – Natural gas prices dropped below $4.00 this week as warmer than normal weather moved into the Central and Eastern U.S. after an extended period of colder than normal temperatures. This is the lowest prompt month price for natural gas since last November, reflecting the ongoing expectation that supplies in 2011 will be more than sufficient to meet demand, in spite of declining storage inventories. The 209 Bcf withdrawal last week dropped inventory levels to 2,144 Bcf , 98 Bcf below last year and 45 Bcf below the five year average. A similar withdrawal is expected this week, which will put inventories at the lowest comparable weekly level in six years. Nevertheless, prices suggest an expectation that warmer weather and production will bring supplies back near or above record levels.

NYMEX crude oil prices moved below $85 per barrel this week, due principally to unusually high crude oil inventories in Cushing OK, the NYMEX settlement location, as well as increased optimism for a non-violent political transition in Egypt. The price for Brent crude oil, however, remains well above $100 per barrel reflecting ongoing international concerns regarding potentially spreading unrest in the Middle East and North Africa.

Also in the news this week was the proposed merger between the New York Stock Exchange (NYSE Euronet) and the German equivalent, Deutsche Boerse. Analysts suggest that the merger will position the combined company to better respond to the changing trading and regulatory environment, specifically as it relates to settlement of derivatives. Passage of the Dodd–Frank Wall Street Reform and Consumer Protection Act last year began the long and complicated process of changing and expanding the existing regulatory environment in the United States, which includes energy markets. Most of the 300+ rules that will need to be written and implemented by the Commodity Futures Trading Commission (CFTC) are still in discussion stages, but it is clear that many derivative transactions that were formerly private or over-the-counter transactions will now need to be cleared or settled through exchanges, both new and existing. Other existing exchanges such as Intercontinental, CME Group and NASDAQ are also looking to capitalize on this massive increase in exchange activities.

It is not yet clear how all of these regulatory changes will affect energy consumers of all sizes, who are looking to hedge pricing exposure through fixed supply prices, fixed basis prices or other transactions entered into directly or with suppliers that utilize underlying derivative transactions. Transactional costs will likely be higher and more stringent credit and/or margining requirements may be imposed on end users. The structure of energy markets is undergoing significant regulatory changes, a process that should be monitored to evaluate both increased costs and compliance requirements.


By Ed Freeman

Glossary Terms

Glossary Terms

Nominated Volume

The physical quantity of gas requested, typically in MMBtu/day, for a specific contract or for all contracts at a specific point.

Marketing Affiliate

A marketing company that has corporate ties to an interstate pipeline, an intrastate pipeline, or a local distribution company.

Energy Only Providers

Power marketers or other electricity vendors who provide and bill for only the energy component of the electricity consumed by the end-use customer.


A unit of heating value equivalent to 100,000 British thermal units (Btu).

Real Power

The component of electric power that performs work, typically measured in kilowatts (kW) or megawatts (MW)--sometimes referred to as Active Power.

Injection (Storage)

The process of delivering natural gas into a storage field for future delivery and use.

Price Ceiling

Statutory maximum lawful prices for various categories of natural gas, including gas destined for both the intrastate and interstate markets.

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Energy Delivery Chains

Energy Delivery Chains

Find out more about how your energy is produced and delivered to your business.

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Energy & the Environment

Energy & the Environment

How we assist clients in responding to national environmental concerns.

  • Initiate and manage a "Green" energy procurement program
  • Evaluate national legislative and regulatory initiatives
  • Research state and local energy efficiency programs and incentives
  • Track energy use and related emissions estimate