Kansas City Board of Trade to Start Natural Gas Futures

Article excerpt

NEW YORK (AP) _ The Kansas City Board of Trade will begin trading natural gas futures contracts next Tuesday, in a bid to pick off some business from its much larger competitor, the New York Mercantile Exchange.

Currently, the Nymex is the only exchange in the world that deals in natural-gas futures contracts. The International Petroleum Exchange in London is considering establishing a natural gas contract, but has not done so.

The Kansas City contract is aimed primarily at buyers in the Western United States who want to take advantage of a West Texas delivery site.

"Delivery for Nymex is in Louisiana," Michael Braude, the Kansas board's president, said in an interview. "That's still a long way from the West Coast."

In setting up the contract, the KCBT hopes to exploit differences in natural gas prices in different parts of the country. It will trade contracts based on delivery to Waha, Texas, located in the Permian Basin in West Texas.

By contrast, Nymex natural gas futures trade for delivery in Erath, La., hundreds of miles to the east.

Buyers and sellers of futures contracts rarely take delivery of the physical product. But they price the contract as if they were going to, factoring transportation costs, weather, and supply and demand differences. …