MCX volumes grow on huge trading interest in natural gas

Record cold in the US and Europe sees spurt in gas demand; this spurs volatility, traders increase time-bound bets

Cold waves in the US helped arrest a sustained fall in the turnover of the Multi Commodity Exchange of India (MCX). It saw a spurt in the trading volumes of natural gas, one of the chief raw materials used for generating heat.

The share of gas in the turnover quadrupled to 23.6 per cent between February 1 and February 7 this year from 4.5 per cent a year ago. The daily average turnover (DAT) in gas for the period doubled from Rs 2,601 crore a year ago to Rs 5,656 crore. The volumes in gas have picked up in one or two months. While the DAT saw a drastic decline in the second half of the last year, it improved to Rs 23,701 crore this year versus 17,356 crore in December and Rs 22,482 crore in January.

A year ago, the overall DAT was Rs 56,023 crore in January.

“The entire American and European continents experienced record cold resulting in a spurt in gas demand. As a result, trading activities boosted, resulting in increased volatility on global exchanges. The trend percolated to India,” said Ashok Mittal, chief executive officer of Emkay Commotrade.

The average gas price shot up to Rs 315.6 a million British thermal unit (mBtu) in February this year compared to Rs 179.3 a mBtu a year ago and Rs 281.25 a mBtu in January. Open interest on the MCX, however, declined to 16.5 million lots in February 2014 versus 25 million a year ago.

Next-day spot gas prices at the benchmark Henry Hub in Louisiana averaged $7.49 a mBtu, up $1.61, or 27 per cent in IntercontinentalExchange (ICE) trade.

When the run to exploit huge reserves of the gas in the US was on in 2008, prices took a dive from the high of $12.7 a mBtu in June 2008 to $2 in April 2012. Most drillers were selling gas at below the cost of production. So, most started drilling more oil than gas.

“This is a seasonal trend, probably will last some more weeks,” said Naveen Mathur, associate director, Angel Broking.

Meanwhile, the US Energy Information Administration said the total US gas storage was 1.923 trillion cubic feet for the week ended January, 22 per cent below the five-year average for this time of year and 29 per cent below the last year’s unusually high level.