Detailed Glossary

A Detailed Glossary of Energy Trading terms for registered users

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by Nick Henfrey - Thursday, 26 March 2015, 7:24 AM

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


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.




Indexed Forward

by Nick Henfrey - Wednesday, 27 August 2014, 7:41 AM

A type of Forward contract that is physically delivered and settled at a price derived from a published index


See Forward contract



by Nick Henfrey - Wednesday, 3 September 2014, 5:29 PM

Term used to describe transferring natural gas from a transmission network into a storage facility


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



by Nick Henfrey - Thursday, 26 March 2015, 7:28 AM

At its most abstract an Instrument is a category of trade types


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



by Nick Henfrey - Thursday, 26 March 2015, 7:30 AM

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


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


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)



by Nick Henfrey - Thursday, 26 March 2015, 7:32 AM

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)


The two main invoicing schedules are:

  • Monthly - all of the commodity that has delivered to a counterparty at a location in the last month is invoiced shortly after the end of the month. The invoice will include all trades that have delivered during the calendar month. Trades delivering over multiple months will appear on successive invoices. Each invoice will only relate to the delivery of each trade within that month
  • Delivery - typically oil is invoiced a few days after a physical shipment has occurred

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