Dark Energy Consulting
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Detailed Glossary
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Index | ||
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An Index is a set of prices that are published for a commodity or product, usually derived from trading data, using an open and independent method Detail An index consists of a set of time periods, with an associated price (or set of prices) for a particular commodity or product for each of the time periods: The time periods are sometimes called grid points (or gridpoints) A typical index has daily granularity forward from the date it is published for a number of days, then monthly for some months, then quarterly, seasonal and annual For each time period there may be a bid price, an offer price, and an average (mean) price Indexes are usually published at the end of each trading day, and represent some sort of average of the prices that Forward and Futures contracts actually traded at on that day (or for a pre-defined period of the day) Various organizations publish indexes for different commodities and products: Exchanges publish indexes for the various products they offer Independent analysts publish indexes for commodities in markets they specialize Trading organizations use indexes to: Derive forward (valuation) curves Fix in floating prices of floating price trades Agree forward valuation of trade portfolios with counterparties for netting agreements There is some similarity between indexes and curves since they are both sets of time-series data. The main differences are: Indexes are published by independent organizations, and are available to any organization that wishes to subscribe to them Indexes only relate to prices of commodities and products Curves are usually created by, and proprietary to, the trading organizations that create them Curves consist of any time-series data, including valuation, volatility, interest rates etc.
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Indexed Forward | ||
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Injection | ||
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Term used to describe transferring natural gas from a transmission network into a storage facility Detail Injection volumes are nominated in the same way as other physical gas movements Injecting gas into a storage facility requires the organization to have available storage capacity See also Storage for more details | ||
Instrument | ||
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At its most abstract an Instrument is a category of trade types Detail It is difficult to define Instrument further than this, because the term is used differently between organizations, functions within organizations, and trading systems A typical instrument may have dimensional attributes of:
So, examples of Instruments may be Note the similarity and differences to a Product Note that some proprietary systems make a very specific use of the term Instrument | ||
Interconnector | ||
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A gas or power connection between two different locations Usually used to flow gas or power from a lower priced location to a higher priced location Detail Interconnectors consist of either a pipe, or cable connecting two hubs or grids For a trading company the process of flowing gas or power from one location to another goes as follows: Procure capacity on the interconnector This may be through an auction, mainly annual and day ahead, or in some cases through a secondary market (i.e. buying or selling capacity to other organizations) Capacity is usually bought in flow rate units (e.g. Nm3/hour for gas, MW for power) over a period of days, a month, quarter, years etc. Capacity on an interconnector is much like an option on a location spread Capacity gives the right, but not the obligation, to flow gas or power from one location to another Transmission In order to use the capacity the trading organization needs to nominate transmission of gas or power to the TSO Let's say we have a long term capacity contract to flow power from the France to the UK through the IFA Noticing the price of power is less in France than in the UK so we nominate to the TSO that we will flow power (up to the capacity flow rate), using the capacity. We normally book this as a trade in our ETRM, but there is no change of title - this is an internal trade We usually book this trade at a fair market price to keep P&L shifting between locations Obviously we need to hedge this with an appropriate long position in France (we buy the power in France) and a short position in UK (we sell the power in UK) | ||
Invoicing | ||
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Like most businesses, we sell something, we deliver it, we raise an invoice, we send it to our buyer, we get paid - we hope. The Master Agreement between us and our counterparty will specify if we raise an invoice for a specific delivery (of oil for example), or for a continuously delivered commodity (gas or power for example) over a period (usually a day, week or month) Detail The two main invoicing schedules are:
Invoices usually have the following granularity:
We may therefore raise a number of invoices for a counterparty, with different combinations of the above Once we generate, or raise, an invoice, and are satisfied that it is correct, we transmit the invoice(s) to our counterparty, and we post the invoice(s) into an Account in our General Ledger We expect our counterparty to be doing the same for commodities that we have bought from them, and expect to receive invoice(s) that we will check against our own records To help this we raise a set of shadow invoices, or purchase orders, so that we can compare these to the invoices received from our counterparty. Once agreed we post these purchase orders into an Account in our General Ledger | ||