Detailed Glossary

A Detailed Glossary of Energy Trading terms for registered users

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Nick Henfrey



by Nick Henfrey - Thursday, 4 June 2015, 5:48 PM

Usually used in the context of Natural Gas - an entry or exit point into a regional gas network or National Transmission System


In the UK natural gas is mostly extracted from gas fields in the North and Irish Seas and pumped through an offshore network of pipelines to a series of Terminals

At the Terminals the gas is metered and then enters the National Transmission System

LNG may be discharged from LNG vessels in an LNG plant, and then regasified into a Terminal located in or close to the port

Interconnectors connect to Terminals at both ends, allowing gas to be flowed out of, and into, the NTS

The UK Terminals are mostly located on or near to the coastline, and are therefore sometimes collectively referred to as the "Beach", or individually as Beach Terminals



by Nick Henfrey - Thursday, 27 February 2014, 7:31 AM

The value of options varies with time, in general the uncertainty in the price of the underlier reduces as the moment of exercise approaches. Theta is the measure of how much the value of a trade, or set of trades, varies with time


Theta is one of the Greeks that measure sensitivity of the value of a trade or portfolio to the passage of time

Like most Greeks, except Delta, it is zero for linear trades (trades with no optionality)



Tolling Agreement

by Nick Henfrey - Wednesday, 12 November 2014, 5:28 PM

A general term used to describe an agreement in which one party (the toller) provides an input product to the other party, and the other party provides another product (usually derived from the input product) in return


In the energy sector tolling agreements may cover:

  • refining - crude oil for a refined product
  • gasification - natural gas for LNG
  • power generation - source fuel, usually natural gas, (and maybe carbon certificates) for power

In effect a tolling agreement is a physically implemented spread



by Nick Henfrey - Wednesday, 29 August 2012, 9:25 AM

A trade is a legally binding contract between two parties

A physically settled trade requires one party to deliver one or more commodities to the other party at a time and location specified in the trade terms, in return for one or more cash payments

A financially settled trade requires both parties to agree the value of one or more underliers, and make one or more cash payments dependent on those values

In general, trades have the following dimensional attributes


Delivery location

Delivery period



Trades also have the following non-dimensional attributes



See also Execution


Trading at Settlement

by Nick Henfrey - Wednesday, 27 August 2014, 7:39 AM

A type of Futures contract that is physically delivered and settled at the exchange closing price of the contract


Traders make bids on an Exchange for a TAS contract, specifying volume and price offset, the Exchange matches bids and offers in the usual way

For example a trader may bid to buy 1,000 barrels of crude oil at the settlement price minus 3 cents, if another trader offers to sell that volume at that price then the exchange matches the orders and a TAS futures contract is executed at the settlement price less 3 cents

A TAS futures contract is similar to an indexed forward

TAS contracts are frequently used in oil futures

See also Trading at Market  



by Nick Henfrey - Monday, 8 June 2015, 7:37 AM

Something physical or tangible that may be referenced by a contract or trade


Financial derivatives are completely cash-based and usually have no physical underliers

Energy derivatives usually have at least one physical underlier, which may be a commodity,

e.g. coal

or a something related to a commodity

e.g. storage

The underlier acts as a bridge to the physical world - and usually as a set of reference prices for price-setting and valuation

We need to emphasize that nearly all energy trades have at least one physical underlier - few of them actually involve the delivery of energy commodities




by Nick Henfrey - Wednesday, 10 September 2014, 7:25 AM

A term principally used in oil and gas context - covering the search for new reserves, exploratory activities, construction of new extraction facilities, and the running of those facilities


The gas and oil industries are generally divided into three main sectors - roughly following the life cycle of the commodity

Upstream activities follow a sequence:

  • Search - actually locating new sources of oil and gas
  • Exploration - the test drilling of wells or testing of other extraction methods on a potential source
  • Construction of production facilities for the extraction
  • Operation of those production facilities to "produce" oil and gas

See also midstream and downstream



by Nick Henfrey - Monday, 13 April 2015, 7:30 AM

Something that behaves like something else but is not really that thing


We've all heard of virtual reality - it appears (or tries to appear) real but is not, but it does have many of the characteristics of real

So what does that mean for us?

Well let's take a real(!) example

Virtual Storage - Storage allows organizations to inject gas at one point in time and withdraw it later

An organization (the seller) may sell another organization (the buyer) virtual storage

the buyer of the product sells gas at no cost to the seller

at some point later in time the buyer of the product requests the seller of the product to sell the gas back at no cost

the seller tracks the level of virtual gas, and tracks this against the virtual capacity of the storage product sold



by Nick Henfrey - Monday, 13 April 2015, 6:10 PM

Volume is the measure of how much of something is involved in a trade

Volume = Quantity (but the term Volume is nearly always used in preference)

Hence in energy trading volume may have dimensions of energy, mass, weight or volume


Volume is one of the important attributes of a trade

Volume may be specified:

As a total for the entire trade

By day, month or some other period for the duration of the trade

Volume has units of quantity according to the commodity:

Mass (often incorrectly called weight) - often used for coal, oil and other non-gaseous commodities

e.g. metric tonne (T), kilogrammes (kg)

Volume - sometimes used for gaseous and liquid commodities

millions cubic feet (mcf), barrels (bbl), gallons

Energy - may be used for any commodity

e.g. therms, Megawatt hours (MWh)

For gas and electricity trades it is generally more convenient to trade in quantities of energy

Other energy commodities are usually measured in volumes of mass or volume since this is more practical to measure at delivery

Volume traded will directly affect the traded position of that commodity

Volume may be constant over the duration of the trade, or may vary over the different delivery periods: the delivery volumes are defined in the Schedule of the trade



Weighted Average Price

by Nick Henfrey - Tuesday, 4 November 2014, 7:15 AM

Weighted Average Price (WAP) is the average price over a series of individually priced volumes


The quickest way to calculate WAP is to calculate the total value over all the individually priced volumes, sum them and then divide by the total volume

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