Fossil fuels contribute to over 88% of the global energy consumption requirements, out of which, Crude Oil has a share of over 37%, the other major fossil fuels being Natural Gas (27.69%) and Coal (20.07%). Other sources of energy account for the remaining 14.72% by nuclear energy, hydroelectricity and renewable.
Political and economic events have a significant impact on Crude Oil, Natural Gas and consequently the prices of distillate products. Increasing economic growth in emerging markets (especially China and other BRIC nations) led to a surge in refining capacity and energy products consumption between 2003 and 2008.
The global production and consumption trends of energy commodities impact the prices across the entire value chain of the specific energy commodity. The value chain commences with the extraction of Crude Oil or Natural Gas from the earth's crust, transportation to refineries around the world (using pipeline, ships, etc.), refining and production of distillate products and their final consumption.
The supply of Crude Oil has increased from 56.08 million barrels per day in 1983 (annual production of 20.50 billion barrels) to over 86.62 million barrels per day in 2010 (annual production of 31.60 billion barrels), a compounded annual growth rate of over 1.62% per annum. The global Crude Oil prices increased from USD 10.42 per barrel in 1986 to a high of USD 147 per barrel in July 2008. The global economic recession in 2008 led to the Crude Oil prices decreasing to less than USD 34 per barrel towards the end of 2008 before rebounding to USD 95 per barrel as on Nov 2011. The Middle-East region contributes to over 30% of the global Crude Oil production and 40% of the global Crude Oil exports, but consumes only 7% of the distillate products produced in the world. The Asia-Pacific region is the largest importer of Crude Oil (38%) in the world. It predominantly depends on the Middle-East to meet its energy requirements.
When the Crude Oil prices increased to over USD 147 per barrel as a result of a depreciation of the US dollar coupled with increasing demand, Natural Gas prices increased to over USD 14 per mmBtu, before the global economic recession resulted in a decrease in Natural Gas prices to as low as USD 2.51 per mmBtu by 2009. The supply of Natural Gas gradually increased, resulting in inventory levels peaking at a seven year-high, thus capping Natural Gas prices at USD 6.01 per mmBtu in the years 2009-10. As on Oct 4th 2011, Natural Gas prices were trading at USD 3.596 per mmBtu, down from the high of USD 4.983 per mmBtu (June 9, 2011).
Natural Gas is a mixture of hydrocarbon gases. It is constituted mainly of methane, along with other gases such as ethane, propane, butane and pentane. It is a major source of global energy requirements and is the third largest contributor towards fulfilling the energy requirements of the world. Natural Gas is colorless and odorless in nature and is highly combustible. It can be transported through pipelines or liquefied and transported by ship.
Even though the Middle-East region accounts only for 14% of the global gas production, it has the world's largest reserves of Natural Gas (of 75.80 tcm), (accounting for over 40% of the global reserves). Iran (29.61 tcm), Qatar (25.32 tcm), Saudi Arabia (8.02 tcm) and UAE (6.02 tcm) are the countries with the most reserves of Natural Gas.
Increasing need to mitigate price risk by producers and consumers of Crude Oil, Natural Gas and distillate products has necessitated the introduction of the Exchange-traded futures contracts. In this perspective, the BFX is launching futures contracts for the Natural Gas in its initial phase. The contract size is 2,500 million British thermal units (mmBtu), in line with the international reference markets. The final settlement price shall be based on the equivalent Henry Hub futures prices in the US markets.
For more information on the BFX Natural Gas Futures product booklet, please click here
For more information on the BFX Natural Gas Futures contract specifications, please click here