Steven A. Mosley, Maumelle, Ark.

Here in the energy business, I think it's safe to say that domestic natural gas pricing is determined by the NYMEX natural gas futures market. So as a producer, industrial, or utility, who should you be looking to for advice on your natural gas hedging activity?

There are certainly many choices out there, and the challenge is to determine what your in-house expertise is and what advisory entities out there actually have some idea of what the futures market is going to do and when and at what level the highs and lows are going to occur.

If, for example, you believe you have the ultimate crystal ball in-house, then about all you need are the statistics and raw information that your specialist or committee might need to determine where and when to pull the hedging trigger. In that case, maybe all you really need is the Internet, some weather forecasts, a live NYMEX feed, and possibly some of the free information doled out daily by commodity brokerages.

For job security, you may perhaps also want to subscribe to one of the very expensive, big-name consultants that use statisticians to sift through reams of numbers to produce reports with exquisite language, fancy charts, and lofty thoughts and assumptions on where pricing should be at some point in the next few months or years. Basically, in-house guys find it helpful in keeping their jobs if they can lay the blame for bad decisions on a well-known entity.

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"If a company wants to know when futures market highs and lows are going to occur that are best for hedging, then it is important to have a person or advisor on your team who has a proven, long-term track record in the natural gas futures market."

On the other hand, if your company acknowledges that there may be seasoned and experienced individuals who might have insight superior to your in-house talent, then consider including an advisory entity known as a Commodity Trading Advisor (CTA) registered with the Commodity Futures Trading Commission (CFTC).

The difference between such a person and all the rest is that a CTA is likely to have experienced actual significant success in trading natural gas futures instruments and is thus likely to have the best understanding of why the futures market is currently doing what it's doing and what market movement lies ahead.

The importance of this should be relatively clear. Basically if a company wants to know when futures market highs and lows are going to occur that are best for hedging, then it is important to have a person or advisor on your team who has a proven, long-term track record in the natural gas futures market.

A person with such a background not only has proven that he has the discipline to take action in the market when he thinks the time is right, but more importantly, he has proven that he has an excellent understanding of what affects and moves the market at various times of the year and how different combinations of fundamentals and even technical factors produce different effects and magnitudes of movement. Most often this requires significant relevant experience within the natural gas industry as well as having years of speculative trading success with personal, hard-earned money on the line. Such a background provides the ultimate sharpening of the senses and associated sense of where the market is going and why.

Where do you find a CTA? Well chances are he's not the guy writing the free advice you receive from your favorite broker or gas supplier, and he's also not likely to be the guy you see quoted each day on the Dow Jones newswire or the Sunday paper. These people tend to be good at providing clever comments about recent market movement and are paid to bring attention to their respective firms to generate trading commissions.

Your best bet for finding a good CTA is word of mouth. However, anyone who utilizes their services should remember that not all information is of equal value. Do your homework and be prepared to recognize a seasoned and valuable CTA if you cross paths with one.

The bottom line is that natural gas pricing is determined by natural gas futures. If you want the best hedging advice possible, consider a CTA with years of successful experience trading NYMEX natural gas futures and the understanding that comes with it. OGFJ

About the author

Steven Mosley is a CTA registered with the CFTC who specializes in natural gas. He has 15 years of speculative trading experience in natural gas futures and has advised numerous high-profile companies, including leading oil and gas producers. Previously, he was employed in the natural gas industry with two producers and two pipeline companies. He served as a management consultant with an international accounting firm and founded his own natural gas marketing company.

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