An Energy Swap is generally a swap of two different prices on an identical, or similar, Energy underlier

Detail

While financial market swaps may involve swapping almost any cash flow for any other cash flow, an Energy Swap involves the swap of two different prices on an identical, or similar energy product or underlier.

The two types of Energy Swap are:

• Fixed for Floating - one price is fixed by agreement in the trade terms, the other price is derived from one or more published indices based on a formula agreed in the trade terms
• Floating for floating - both prices are derived from one or more published indices based on a formula agreed in the trade terms. This type of Swap is also known as a Basis Swap

By definition, Energy Swaps are always financially settled

Energy swaps may be traded OTC or on an Exchange

An Energy Swap is very similar to a a financially settled Futures or Forward Contract

Exchange traded swaps are generally settled through non-daily margining - and therefore have credit risk

Financially settled futures, like all futures, are settled through daily margining - and have minimal credit risk