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Natural gas, which has gained significant speculative attention six months ago on the Multi Commodities Exchange (MCX), has now lost the luster with sharp fall in prices.
On New York Mercantile Exchange, which was around $6.15 a mBtu as on February 19, 2014, dropped sharply to current level of $3.73 a mBtu, while at the same time domestic price on the MCX was around Rs 386.20 a mBtu as on February 20, 2014, almost both International and domestic prices have fallen more than 40 per cent. In the current month, it has dropped almost by 15 per cent to close on Wednesday at Rs 229.5.
On February 24, MCX natural gas volume was Rs 9,915 crore, which was 36 per cent of the MCX turnover that day.
Ajay Kedia, director, Kedia Commodities, said, “In last December to February period, activities in other commodities were not much, while natural gas prices were rising and its contract size being smaller speculator had entered. However, of late, because of geopolitical tension, volatility in crude oil and gold has increased, which has attracted speculative interest and hence they diverted from natural gas.”
Six months ago in February, the natural gas trading volumes contributed 23 per cent of the MCX business and on some days its volumes were quite huge as speculators turned focus from gold to gas but with prices falling sharply, even volumes have fallen more sharply and its share in total volume is now less than 10 per cent, which was the trend earlier.
In February 2014, average monthly volume was Rs 4,750 crore but, in July, it came down to normal monthly average of below Rs 1,300 crore.
The reason for such a steep correction was unseasonably cool summer in the United States has kept the consumers to use less air conditioner and gas-fired electricity that fuels it, which in turn made producer surpluses go even more higher on less consumption that is why prices have fallen such sharply, while domestic price does not have positive co relation with international natural gas price, but speculator do take short-term call on tracking NYMEX natural gas price movement and data indicators.
Traders are waiting for Prime Minister Narendra Modi’s visit to the US in September, a major LNG (liquefied natural gas) exporter. Trade and industry expect the US will agree to sell LNG to India by exempting it from the requirement of compulsory free trade agreement (FTA). LNG imports from the US are largely dependent on approvals from the department of energy, Federal Energy Regulation Commission and clearances from various departments of the US. Approval of Department of Energy is crucial as it pertains to export of LNG to countries which have a free trade agreement with the US and, or nations which have not signed FTA with the US but are not covered under any sanctions for trade relations.
