Natural Gas Commodity
Natural gas commodity prices are determined by trading on the New York Mercantile Exchange. This exchange is the world's largest commodities stock market, selling natural gas, crude, gasoline, heating oil, coal, electricity as well as precious metals such as gold, silver and platinum. The mechanism by which all of this buying and selling takes place is the futures contract, which is an agreement to buy these products at a certain price on a future date. As one of the world's most prolific owners of natural gas, the United States takes the lead in how this resource will be marketed in the years to come. There is plenty of evidence to suggest that the natural gas commodity that is so abundant will probably be the interim fuel for the United States before solar, wind and nuclear take center stage in the next fifty years.
A commodity is anything that is bought or sold that is uniform in quality from one seller to another. In an ideal world, a commodity would be sold on marginal cost. That's the cost it takes any company to produce one more unit of a product. But in the real world, marginal costs are only the beginning. Speculation on commodity abundance or scarcity or how much the commodity costs to ship the product into a country because of tariffs sends the product price either skyrocketing or plummeting.
The futures market, of which the natural gas commodity market is a part, works off of two types of buyers and sellers: speculators and hedgers. The hedger, who might be a manufacturer, or an importer or exporter of a commodity buys or sells to secure a certain price for a future sale. This is an action taken to protect against price risks that are so common in the volatile commodities market. So those buying natural gas six months from now may offer to buy it at a slightly higher rate than it is now being offered to hedge against what might be seen as a rise in prices over the next six months that would end up being much higher. Hedgers want to actually own whatever commodity with which they are dealing. The hedgers do not have the bad publicity that their speculating counter parts have however.
Speculators have the nasty reputation of being the ones seen as running up the price various commodities, such as the natural gas commodity market in order to gain some windfall profit. Speculators are seen as those greedy, anti-American evil men that drive up the prices of everything from coffee to diamonds and oil in order to manipulate and profit from higher prices. Speculators don't want to own anything; these folks are just looking for profits by buying and selling futures contracts. Every futures contract, no matter if it is a natural gas commodity contract or one for wheat will have two parties: one selling and one buying. The person selling the gas will be the one with the short position, while the trader buying the gas will be the one holding the long position. At the actual commodities exchange market, all kinds of contracts are flying around the room, each with specifics about how much and when the commodity will actually be delivered.
When a trader of these commodities contracts begins his or her trading day, a certain amount of money must be in their account. During the day as contracts are bought and sold, that deposit made be depleted, especially if there are a number of losses. The trader is then given what is called a margin call, which means a new deposit must be made in order to keep doing trades for natural gas commodity contracts or any other futures trading. Failure to fulfill the margin call will usually end a trader's ability to continue trading. This is a business that is filled with huge risks and downsides, but there is a great deal of money to be made when all the stars line up and the guesses are correct.
Some of the issues that Congress will be addressing in the years to come will include the role of speculators especially in the energy markets. In 2008, speculators in the oil industry drove up the price of oil to stratospheric heights creating what is called a bubble. That is defined as a cumulative movement in the price of a commodity whose price is high mainly because speculators think it is going to go even higher. Then the bubble burst causing the price of oil to drop precipitously. Bubbles happen because speculators are looking for fast and quick profits, no matter what the conditions of the market are surrounding the bubble phenomenon. They are certainly not a favorable thing for consumers and so when natural gas commodity markets start a fast and furious pace in the years to come, Congress will have to address the role of speculators more closely.
No matter what direction Congress goes, there will be critics of the move. While natural gas commodity prices do not have the front headlines now that oil futures possess, if T. Boone Pickens is right, natural gas will be the bridge fuel for the middle part of the 21st century. So Congress will either need to be the squeeze on speculators, which may hurt market liquidity and hedging opportunities, or take the side of consumers and try to curtail speculation that drives up prices. No matter what decisions are made in Washington, unless America puts her faith and trust in the God of the Universe, her days are numbered. Jesus said it like this: "He that heareth and doeth not (my sayings) is like a man that without a foundation built an house upon the earth; against which the stream did beat vehemently, and immediately it fell; and the ruin of that house was great." (Luke 6: 49)