The Natural Gas/Electricity Nexus

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The Natural Gas/Electricity Nexus

• Brad Leach
• Senior Director, Electricity and Natural Gas
  Research
• NYMEX
• APEX 2006 Annual Conference
• Association of Power Exchanges
• Seoul, Korea
• October 31, 2006

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An Overview of NYMEX

• Regulated by Commodity Futures Trading Commission
  as a Trading Facility and a Clearing Organization
• Two Divisions NYMEX and COMEX
• Continuous 133-Year History as Commodity Exchange
• Open Outcry Floor Trading
• Web-Based Clearing and Trading

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NYMEX Regulatory Protections

• NYMEX CFTC Regulation
• Compliance Department
• Market Surveillance
• Trade Surveillance
• Financial Surveillance

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NYMEX Clearinghouse and Financial Protections

• Currently 40 Clearing Members
• Clearing Member Financial Requirements
• 5 Million Minimum Net Working Capital
• Currently 14 Billion on Deposit in Margin Funds
• Rated AA by SP
• Clearing Member Guaranty Fund of Over 140
  Million
• 100 Million Default Insurance
• Margin Requirements
• Original
• Variation
• NYMEX Emergency Procedures

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Total Volume of NYMEX Cleared Contracts in
Million Contracts / Year
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NYMEX Natural Gas Annual Volumes
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NYMEX-CME Alliance Growth thru Distribution and
Superior Technology

• Why the NYMEX/CME Alliance
• Is Succeeding
• Customer Access to Superior Technology
• Global Distribution Our customers want
  efficiency of transaction, in one location.
• Ability to add key new contracts for better
  market efficiencies.

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NYMEX CME GlobexContracts

• Energy Contracts Listed on CME Globex
• Full Size ContractsNYMEX miNY Contracts
• Crude Oil Financial Futures (WS) NYMEX miNY Crude
  Oil Futures (QM) Heating Oil Financial Futures
  (BH)NYMEX miNY Natural Gas Futures (QG)RBOB
  Gasoline Financial Futures (RT) NYMEX miNY
  Heating Oil Futures (QH) Natural Gas
  (Penultimate) Financial Futures (HP)NYMEX miNY
  Gasoline Futures (QU) Natural Gas (Last-day)
  Financial Futures (HH)    
• NYMEX Europe Contracts Brent Crude Oil Futures
  (SC)  NYMEX Europe miNY Brent Futures (QB)
   Gasoil Futures (GR)   
• Physically Delivered Contracts
• Crude Oil (CL) Natural Gas (NG) Gasoline (HU, RB)
  Heating Oil (HO)

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NYMEX NATURAL GAS FUTURES FRONT MONTH
SETTLE(4/3/90-11/30/05)
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NYMEX NATURAL GAS FUTURES FRONT MONTH
SETTLE(4/1/05-10/20/06)
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Natural Gas VolatilityFront Month
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Gulf Of Mexico Gas DeclineFirst Year Well
Depletion
SOURCE Simmons Company International
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Texas First Year Natural Gas Well Depletion
Source Gary S. Swindell
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Canada First Year New Well Depletion
SOURCE Simmons Company International
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Source EIA
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U.S. Natural Gas Total Consumption
Source EIA
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Source EIA
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Source EIA
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U.S. Natural Gas Sector Distribution
Summary(1997-2005)

• Industrial use has declined from 41 to 32 of
  total U.S. consumption (-1.9 Tcf)
• Electricity use has increased from 20 to 29 of
  total consumption (1.7 Tcf)
• This shift from industrial to electric use has
  resulted in an increase in total natural gas that
  is subject to weather sensitive demand and pricing

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2003 Natural Gas Electricity Generation
Source IEA
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NYMEX Electricity Complex Volume
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NYMEX Electricity Complex

• Monthly Peak Contracts
• PJM
• NYISO
• ISO-NE
• AEP-Dayton
• NI Hub
• MISO Hubs
• ERCOT
• DOW Jones Western Indices
• Monthly Off-Peak Contracts
• PJM Western Hub
• NYISO
• ISO-NE
• AEP-Dayton
• NI Hub
• Cinergy
• PJM Options Contract
• Daily Peak Contracts
• PJM

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Mass Hub and PJM Western Hub Electricity
Real-Time Peak Daily Prices
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Many Storage Fields Will Reach Capacity Before
November
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NYMEX NG Forward Curves
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December Natural Gas Prices Settlements in USD

• 10/23/06
  12/13/05
• NYMEX 7.81 15.38
• UK 11.15 16.65
• Zeebrugge 11.06

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December Spark SpreadsQuotes in USD

• 10,000 7,000 Btu/KWh
• U.S. -25.92 .87
• U.K. -15.59 17.85
• Germany -31.01 2.12

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DISCLAIMER

• The New York Mercantile Exchange, Inc., (the
  Exchange) is making this information available
  for informational purposes only. The Exchange
  has attempted, wherever possible, to make
  statements in good faith based upon current
  information and expectations by using words such
  as "anticipate," "believes," "expects" and words
  and terms of similar substance. Any
  forward-looking statements made by, or on behalf
  of the Exchange, involve a number of risks,
  trends, and uncertainties and other factors that
  may cause actual results to differ materially.
  As such, readers are cautioned not to place undue
  reliance on the information contained herein,
  which only speaks as of the date of the issuance
  of this information.