Detailed Glossary

A Detailed Glossary of Energy Trading terms for registered users

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Take or Pay

by Nick Henfrey - Sunday, 12 April 2015, 3:34 PM

A type of supply contract in which the buyer commits to buying a minimum quantity of some product, or to make an alternative payment for the amount below the minimum quantity

Take or Pay contracts are widely used in the Gas and Oil markets


The minimum quantity, the price of purchase, and the price paid for any amount below the minimum are all defined in the contract

Typically the buyer nominates a delivery volume each day from the supplier, the minimum quantity applies over a year



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