Anatomy of natural gas market in United States

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The United States natural gas market can be divided into following sub-regions:

Western Gas Region

• Electrical generators through out this entire region depend on natural gas as a primary fuel. In summers it is very hot, and natural gas is especially in demand then to provide electricity for air-conditioning.
• The major competing power source is hydroelectric power from the Pacific Northwest. As a result, precipitation and snowmelt can have a large effect on regional natural gas prices during peak demand periods.
• Most of region has mild winters.
• In the Western United States, the geography is dominated by the Rocky Mountains. The West Coast (Washington, Oregon, California) and parts of Arizona are heavily populated. However, most of the region has a sparse population. California is the biggest user of natural gas, and tradding commonly revolves around imports to the California market. These imports come from Canda and the Desert Southwest.
• Storage capacity is extremely limited. This can lead to sharp price movements during the period of peak demand.
• Western basis prices are not highly correlated with the NYMEX futures (Henry Hub) since the region does not directly import from the Gulf Coast, where Henry Hub is located.
• A substantial amount of natural gas is produced at the eastern edge of the Rocky Mountains in Wyoming, Utah, and Colorado. However, most of this gas flows to the Midwest rather than to the population centers on the West Coast.

MidWestern Gas Region

• The Midwestern is a major consuming region during winter months. Cold winters characterize the entire Midwest region and there is a strong seasonal demand for natural gas in the winter to provide residential heating.
• This region does not use natural gas as a primary fuel for electrical power plants. Coal is the primary fuel for power in the Midwest. There is comparatively little demand for natural gas in the summer months.
• Numerous storage facilities and extensive local distribution networks are located in the region. Many of these areas have gonernment mandated obligations to meet residential demand during winter months. For example, to ensure that consumers have access to fuel, government might force gas in storage facilities to be delivered to residential consumers rather than saving it for commercial use.
• Large pipelines connect the Midwest to all of the major supply basins in North America. Canada and the Rocky Mountains supply the bulk of the Midwest's natural gas requirements. However, some gas also comes from the Gulf Coast region when it is available.
• Basis prices in the Midwest are somewhat correlated with NYMEX futures (Henry Hub). The region imports gas from the Golf Coast, but also has access to other gas supplies.

Eastern Gas Region

• On the East Coast, natural gas is used extensively for both residential heating and electrical generation. As a result, there is a year-around demand for natural gas in this region.
• There is a limited amount of storage available in the region. Combined with the high seasonal demand for both heating and electricity in the winter, basis prices (prices relative to the supply regions) are often the highest in the country.
• LNG (liquefied natural gas) terminals are being built to import gas from other countries and provide additional storage.
• The East Coast is a heavy importer of natural gas from Gulf Coast region. As a result, basis prices are highly correlated with NYMEX futures (Henry Hub).

Texas and Gulf Gas Region

• The Texas/Gulf Coast region is a net exporter of natural gas. It is the most important natural gas producing region in North America. Most of the exports flow to the East Coast and the industrialized Midwest.
• Abundant local supplies have made the region heavily dependent upon natural gas as a fuel for electricity generation.
• The region has mild winters, and there is a limited seasonal demand for natural gas during winter months for heating.
• There is a substantial amount of storage in the region. This helps processing plants located in the Gulf Coast region balance their production with consumer demand from other parts of the country.
• The basis prices in the region are highly correlated to NYMEX future prices. The settlement location for NYMEX futures, Henry Hub, is located in western Louisiana.

Southeast Gas Region

• Natural gas is primarily used to provide electricity in the Southeastern United States. The demand for electricity peaks during summer months as the hot summer create high demand for air conditioning.
• Mild winters limit the need for seasonal residential heating.
• The Southeast region has very limited or no storage capacity.
• LNG (liquefied natural gas) terminals are being constructed to supply additional natural gas and provide storage facilities. There is a major LNG terminal at Elba Island.