Detailed Glossary of Energy Trading terms

When transmitting Electricity via Interconnector, some  of the power is lost and thats called Line Loss. For UK-FR interconnector line loss factor is 1.17%

A trade with no optionality

Detail

Why?

The linearity refers to the delta - that is the variation of the value of the trade with the main underlier

Trades with no optionality have a value that is directly proportional to the value of the underlier - if we plot the value against the value of the underlier it will be a straight line - hence linear trade

Trades with optionality do not have a linear relationship between value and underlier. As the value of the underlier becomes less and less favourable the value of the trade becomes nearer and nearer to zero

Unsurprisingly these trades are known as non-linear

Liquefied Natural Gas

Natural Gas is difficult to liquefy by compression alone, it is usually liquefied, stored and transported at very low temperature

LNG acts like oil and coal for transportation, like natural gas once it is returned to its gaseous form

Detail

Unlike propane gas it is not practical to liquefy natural gas (which is mostly methane gas) by compression alone, and it is normally liquefied by refrigeration to -160 ^oC and stored and transported at moderate pressures

LNG needs to be transported in specialist ships (LNG vessels) that can maintain the low temperature required, so are quite different to other commodity carriers

On arrival at a destination port the LNG needs to be returned to its gaseous state in a plant which is attached to a gas terminal

Other than the ships themselves the logistics of LNG transport involve the same complexities as oil and coal

 LNG is big business for two main reasons:

A vast quantity of natural gas is already available from oil rich countries - but there are no pipelines to flow it long distances (Russian gas into Europe being the main exception)

The process of extracting natural gas from unconventional sources (typically shale) by hydraulic fracturing ("fracking") is likely to yield even more gas - but usually not where it's needed

Location is one of the key dimensional attributes of all physically settled, and many financially settled, trades

Detail

Location is usually a description of where the delivery a of a trade will take place

Although this sounds fairly straightforward, in practice location means different things for different commodities.

This is because the delivery location simply defines the lowest level of distinguishable information about the delivery, and this lowest level varies with the commodity

So let's look at some commodity locations to see what this means:

Natural Gas

The location of the majority of gas trades in the UK is the NBP

The NBP isn't even a real location, it describes the UK-wide gas pipeline network called the National Balancing Point

On the day of delivery, a seller of gas has an obligation to deliver gas at the NBP

The seller may deliver it from any other location that is physically connected to the NBP, it doesn't matter where that is.

The buyer may take delivery to any other location that is physically connected to the NBP

Gas traded locations such as the NBP are called hubs.

Some hubs require the buyer and seller to identify the physical connection point of delivery - these are physical hubs

Other hubs, like the NBP do not require the buyer and seller to identify the connection point - these are virtual hubs