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NYMEX Energy Markets
Bradford G. LeachSenior Director, Electricity and
Natural Gas ResearchNYMEX
USAEE/IAEEJuly 9, 2004
NYMEX Defined
• Demutualized For-Profit Corporation• 816 Shares with Trading Rights• Two Divisions: NYMEX and COMEX• Open Outcry Floor Trading• Web-Based Clearing and Trading• Regulated by Commodity Futures Trading
Commission
Primary Economic Functions of the Commodity Exchanges
Price DiscoveryPrices are determined:
• in a transparent, competitive market• by market participants ( not the Exchange )• and disseminated throughout the world
instantaneously
Hedging FunctionPrice risk is shifted to parties with an inverse risk profile
Why Use NYMEX Futures & Options?
• Volatility of the underlying commodities
• Liquidity of NYMEX traded contracts
• Safety of Exchange traded instruments
• Electronic trading extends the normal trading day to 23 hours
Total Volume of NYMEX Traded Contracts
020,000,00040,000,00060,000,00080,000,000
100,000,000120,000,000140,000,000160,000,000
1996 1997 1998 1999 2000 2001 2002 2003
Con
trac
ts
Futures Options
Energy Market Credit Developments
Continued Financial Weakness of Merchant Sector
Dramatic Increase in Credit Risk Recognition
Significant Reduction in Leverage and Liquidity of Market Participants
More Demanding Financial Statement Reviews with Rating Changes
NYMEX Clearporttm
• Web-Based Platform for Trading and Clearing NYMEX Contracts
• OTC Market Use of NYMEX Clearing Protections• Launched 5/31/02• Total 2004 Volume: 5,086,810 • Increase of 77% from 2003• 30 NG Basis Contracts• 20 CL and Products Contracts• 13 Electricity Contracts
NYMEX Natural Gas and Electricity Contracts
• Product Trade Date• Natural Gas 1990• COB Electricity 1996• Palo Verde Electricity 1996• Cinergy Electricity 1998• Entergy Electricity 1998• PJM Electricity 1999• Mid-Columbia Electricity 2000• Cleared Palo, Mid-C, PJM 2002• Natural Gas Basis Contracts 2002• NYISO Zones A, G, J 2002• PJM Monthly Financial 2003• Additional Natural Gas Basis Contracts 2003 • PJM Daily and Weekly Financial: 2003 • Dow Jones Western Electricity Contracts 2004
NYMEX PJM: Monthly, Weekly, and Daily
0
200
400
600
800
1000
1200
1400
1600
2/5/04
2/12/0
42/1
9/04
2/26/0
43/4
/043/1
1/04
3/18/0
43/2
5/04
4/1/04
4/8/04
4/15/0
44/2
2/04
4/29/0
45/6
/045/1
3/04
5/20/0
45/2
7/04
6/3/04
6/10/0
46/1
7/04
6/24/0
47/1
/04
20-Day Daily20-Day Weekly 20-Day Monthly
NYMEX PJM Monthly Floor Volume
0
100
200
300
400
500
600
700
800
900
1000
11/1
0/03
11/1
7/03
11/2
4/03
12/1
/03
12/8
/03
12/1
5/03
12/2
2/03
12/2
9/03
1/5/
04
1/12
/04
1/19
/04
1/26
/04
2/2/
04
2/9/
04
2/16
/04
2/23
/04
3/1/
04
3/8/
04
3/15
/04
3/22
/04
3/29
/04
4/5/
04
4/12
/04
4/19
/04
4/26
/04
5/3/
04
5/10
/04
5/17
/04
5/24
/04
5/31
/04
6/7/
04
6/14
/04
PJM FL10-Day
Comparative Historical Volatility7/6/04
• Volatility 10-Day 30-Day 50-Day 100-Day• Natural Gas 25% 32% 34% 31%• Crude 43% 44% 38% 32%• Unleaded Gasoline 51% 46% 39% 34%• Heating Oil 51% 48% 41% 35%• Fed Funds 15% 27% 34% 34%• 10Year Treasury 7% 7% 7% 7%• EuroDollar 3-Mo 30% 36% 42% 46%• S&P500 10% 11% 11% 12%• Gold 18% 16% 18% 18%• Silver 40% 34% 39% 42%• Live Cattle 29% 23% 21% 17%• Yen 10% 12% 13% 12%• PJM Monthly 15% 24% 22% 22%
NYMEX Open Interest6/30/04
• Commodity 6/03 6/04 Chg• Heating Oil 118,211 181,680 54%• Unleaded Gas 84,200 130,412 55%• Crude Oil 503,506 698,380 39%• Natural Gas 347,864 363,947 5%• PJM Monthly 5,073 32,065 532%• NYISO A 7,728 17,251 123%• NYISO G 10,298 11,509 12%• NYISO J 2,481 4,411 78%
• Total Floor 1,060,106 1,408,246 33%• Total ClearPorttm 824,777 1,693,082 105%
NYMEX Natural Gas Annual Volumes
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
1996 1997 1998 1999 2000 2001 2002 2003 2004
NOTE: 04 volume thru June
Con
trac
ts
Futures Options
U.S. Natural Gas Sector ConsumptionSource: Energy Information Administration
20003000400050006000700080009000
1997 1998 1999 2000 2001 2002
BC
F
Residential Commercial Industrial Electric Power
-18%
+40%
Gulf Of Mexico Gas Decline
0%
10%
20%
30%
40%
50%
60%
1970
-7119
72-73
1974
-7519
76-77
1978
-7919
80-81
1982
-8319
84-85
1986
-8719
88-89
1990
-9119
92-93
1994
-95 1996
1997
1998
1999
Wells Completed During Time Period
Effe
ctiv
e D
eclin
e R
ate,
%/y
r
SOURCE: Simmons & Company International
Total United States Natural Gas Imports
SOURCE : Energy Information Administration, DOE
0500,000
1,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,0004,500,000
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Mill
ion
Cub
ic F
eet (
MM
cf)
U.S. Exports to Mexico
0
100
200
300
400
500
600
700
800
900
1000
1Q97 3Q97 1Q98 3Q98 1Q99 3Q99 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02
Mex
ico
- Net
Impo
rts, m
mcf
/day
SOURCE: Simmons & Company International
EIA: United States Natural Gas Storage Report Historical Comparison
0
500
1,000
1,500
2,000
2,500
3,000
3,500
week 1
week 8
week 1
5wee
k 22
week 2
9wee
k 36
week 4
3wee
k 50
week 4
week 1
1wee
k 18
week 2
5wee
k 32
week 3
9wee
k 46
Bill
ion
Cub
ic F
eet (
Bcf
)
5-year Avg. (98-02)2003-04
NYMEX Natural Gas Front Month Settlement Prices (1997 - Present)
$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00
$10.001/
4/99
4/4/
997/
4/99
10/4
/99
1/4/
004/
4/00
7/4/
0010
/4/0
01/
4/01
4/4/
017/
4/01
10/4
/01
1/4/
024/
4/02
7/4/
0210
/4/0
21/
4/03
4/4/
037/
4/03
10/4
/03
1/4/
044/
4/04
US
$$/ M
MB
tu
NYMEX Natural Gas Futures 12 Month Strips
$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50$5.00$5.50$6.00$6.50$7.00$7.50$8.00
April June August October December February
Contract Month
Pric
e
3/2/98 3/1/99 3/1/00 3/1/01 3/1/02 3/3/03 3/1/04
March 2001: $5.313March 2002: $2.792March 2003: $5.749March 2004: $5.758
NYMEX NATURAL GAS FUTURES 12 MONTH STRIP PRICES
2.0002.5003.0003.5004.0004.5005.0005.5006.0006.5007.000
Jul
Aug Se
p
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun
$/M
MBt
u
6/9/04 6/9/03 6/10/02
PJM Front Month:30-Day Volatility(08/13/2003~07/02/2004)
0%
5%
10%
15%
20%
25%
30%
8/13/03 10/13/03 12/13/03 2/13/04 4/13/04 6/13/04
PJM
NYISO Front Month:30-Day Volitility(08/13/2003~07/02/2004)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
8/13/03 10/13/03 12/13/03 2/13/04 4/13/04 6/13/04
NYISO ANYISO GNYISO J
Natural Gas v.s. Crude Oil Front month:30-Day Volatility
(04/04/2002~07/02/2004)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
4/4/02 7/4/02 10/4/02 1/4/03 4/4/03 7/4/03 10/4/03 1/4/04 4/4/04 7/4/04
Crude OilNatural Gas
Date Price Return06/14/04 56.50$ 06/15/04 58.25$ 0.030506/16/04 60.25$ 0.033806/17/04 60.50$ 0.004106/18/04 59.50$ -0.016706/21/04 59.00$ -0.008406/22/04 59.50$ 0.008406/23/04 59.50$ 0.000006/24/04 59.25$ -0.004206/25/04 58.00$ -0.021306/28/04 56.50$ -0.026206/29/04 54.50$ -0.036006/30/04 55.25$ 0.013707/01/04 55.00$ -0.004507/02/04 55.00$ 0.0000
NYMEX Dow Jones Mid-Columbia Electricity Price
Index Swap Contract10-Day Volatility
30.719%29.250%24.034%26.429%26.252%26.671%
Date Price Return 10-Day Volatility06/09/04 69.75$ 06/10/04 71.63$ 0.026606/14/04 71.50$ -0.001806/15/04 72.50$ 0.013906/16/04 73.50$ 0.013706/17/04 73.25$ -0.003406/18/04 71.75$ -0.020706/21/04 70.00$ -0.024706/22/04 70.00$ 0.000006/23/04 69.75$ -0.0036 26.46%06/24/04 69.75$ 0.0000 21.08%06/25/04 69.25$ -0.0072 21.19%06/28/04 66.75$ -0.0368 24.82%06/29/04 64.50$ -0.0343 23.82%06/30/04 65.50$ 0.0154 28.37%07/01/04 63.75$ -0.0271 29.18%07/02/04 63.75$ 0.0000 29.02%
NYMEX Dow Jones NP15 Electricity Price Index Swap
Future Developments
• NG Swing Swaps• Off-Peak Electricity Swaps• NI Hub Futures• ISO-NE Futures• ERCOT Futures• MISO Futures• Emissions Contracts
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