in the pricing of financial instruments, the value determined by mathematical modelling of the instruments value. Also used as a defined term in US accounting standards as ‘fair-value accounting’ and ‘fair-value hedges’ as in Financial Accounting Standards Board Statement FAS 133. A fair-value hedge is a hedge of the exposure to changes in the fair value of a recognised asset or liability, or of an unrecognised firm commitment, which are attributable to a particular risk.

    see Financial Accounting Standards Board Statement 133

   on a distribution curve, a fat-tailed distribution has a greater-than-normal chance of a big positive or negative realisation.

   Futures Commission Merchant – an individual or organisation accepting orders to buy or sell futures or futures options. A person or organisation in this role needs to be certified by the Commodities Futures Trading Commission.

   the US government body that regulates US interstate energy markets.

   an acronym for front-end engineering and design typically referring to planning and design (with defined groups of activities or segments) in the early stage of a project, especially for the process industry.

   crude products, natural gas, chemicals or raw material used in a refinery, liquefied natural gas liquefaction plant, or petrochemical plant for processing into a finished output product or products.

    see Federal Energy Regulatory Commission

   a Federal Energy Regulatory Commission order issued in February 2000, which clears the way for the formation of regional transmission organisations.

   a Federal Energy Regulatory Commission order issued in 1992 to restructure the US gas pipeline industry. It relaxed service requirements on pipeline firms and gave customers greater flexibility as to whom they could buy from by separating gas sales from transportation. This ‘unbundling’ of sales and transportation also involved the extension of transportation to include storage and allowed end-users with firm transport contracts to sell unused capacity.

   a Federal Energy Regulatory Commission order issued in 1996 to restructure the US wholesale electricity industry. It required all utilities that owned transmission lines to provide open-access, non-discriminatory service for all wholesale transactions (including their own wholesale transactions) and allowed utilities to seek recovery of the stranded costs associated with providing open access.

   private-sector organisation responsible for establishing standards of accounting and financial reporting in the US.

   FAS 133 obliges US firms to put all financial derivative instruments that are not used to hedge exposure on the balance sheet at market value. Companies, therefore, disclose unrealised gains and losses on derivatives, rather than accounting for them only at maturity.

   FPML is a standardised language designed for sharing information on, and dealing in, swaps, derivatives and structured products across software and hardware systems.

   natural gas for which the full price has been paid on the understanding it will be delivered continually through the contract period. see also interruptible service

   an amount of natural gas in a buyer’s contract that is guaranteed not to be interrupted, or a liquefied natural gas (LNG) terminal access capacity contractually guaranteed by the terminal operator or guaranteed capacity by LNG shippers or sellers.

   electricity transmission service offered to customers under a filed rate schedule that anticipates no planned interruption.

   gas or electricity sales that are guaranteed not to be interrupted. see also non-firm service, interruptible service

   twenty-one days before a cargo of Brent blend crude oil loads at the Sullom Voe terminal, the details of the cargo are passed through the paper chains. If the cargo has not been kept by 17:00 hours local UK time, then the last participant to receive a call with the cargo details owns the physical cargo and has been ‘five o’clocked’. Normally this is seen as a bearish sign, as it usually happens in a market with low crude demand. see also daisy chain

   in the gas market, where the system needs to buy or sell gas to keep it in balance, a shipper may put in a flexibility bid. The shipper specifies whether it is a buy or sell, the date or dates to which it applies, the amount of gas, the calorific value of the input gas, how quickly it could be implemented, how and where it would be implemented and the price.

   technology used for new types of liquefied natural gas facilities and vessels that have on-board liquefaction plants. Such technology provides an alternative for developing otherwise stranded natural gas reserves.

   1) the main trading area of an exchange. 2) a supply contract between a buyer and seller of a commodity, whereby the seller is assured that it will receive at least some minimum price. This type of contract is analogous to a put option, which gives the holder the right to sell the underlying at a predetermined price .

    see free-on-board

    see fuel oil domestique

   a contract clause that allows the supplier to forego his obligation to supply in extreme circumstances, such as a political crisis, war or strikes that disturb production. It also applies to a buyer that is unable to take delivery of product – for example, a refiner whose refinery is shut down following a fire or disaster.

   a supply contract between a buyer and seller, whereby the buyer is obligated to take delivery and the seller is obligated to provide delivery of a fixed amount of a commodity at a predetermined price on a specified future date. Payment in full is due at the time of, or following, delivery. This differs from a futures contract, where settlement is made daily.

   FFAs are derivatives instruments used to hedge risk in the tanker freight sector.

   a list or graph of the future value of a commodity or financial instrument over time.

   an agreement between two parties to exchange a rate differential during a predetermined time period, based on an agreed future rate during that period.

   an option that gives the purchaser the right to receive, after a specified time, a standard put or call option. The option’s strike price is set at the time the option is activated rather than when it is purchased and is usually set with reference to the prevailing spot rate when the option is activated. see also chooser option

   a swap in which payments are fixed before the start date – used when one party expects market rates to rise soon, but will not need funds until later. see also deferred swap

   buried deposits of organic materials that have been compressed over millions of years into crude oil, coal or natural gas.

   Florida Reliability Co-ordinating Council – a North American Electric Reliability Council within the Eastern Interconnection.

   under an FOB contract, the seller provides the crude oil, oil product or liquefied natural gas at a lifting installation, so that all loading costs to put the commodity on board a carrier have been paid, but the buyer takes responsibility for shipping and freight insurance. see also CIF

   derivatives instruments used to hedge risk in the tanker freight markets. Tankers are one of the most common means of transporting commodities such as oil and coal. Freight derivatives, such as swaps or forward freight agreements, can be used to protect ship owners against changes in freight rates.

   the number of cycles per second of electromagnetic waves, as measured in hertz.

    see prompt month

   Quarterly contract that begins at the start of the following quarter.

   typically refers to the first year of a long-term, such as that for liquefied natural gas or other energy products contract (for example CAL 09).

   a device that converts fuel energy to electrical energy by means of an electrochemical process. Fuel cells chemically combine the molecules of a fuel (most commonly hydrogen) and an oxidiser (e.g., air) to create heat without burning, thereby reducing the thermal inefficiencies and pollution that characterise traditional means of combustion.

   various gases that may be burned to produce thermal energy, including natural gas, propane, butane, liquefied natural gas or hydrogen.

   heavy refined distillates. Used to fuel power stations and in ships and industry. The different fuel oil grades are classified according to their viscosity and sulphur content.

   gasoil of a particular specification used for end-user central heating in France.

   analysis of supply and demand factors that could influence the direction of price of a commodity. For example, electricity traders, using fundamental analysis, consider weather patterns, transmission constraints and unexpected power plant outages to calculate the demand for power and the amount of generation available in the region. see also technical analysis

   a product is fungible if it can be exchanged. Futures contracts for the same commodity and delivery month are said to be fungible due to their standardised specifications.

   an exchange-traded supply contract between a buyer and a seller, whereby the buyer is obligated to take delivery and the seller is obligated to provide delivery of a fixed amount of a commodity at a predetermined price at a specified location. Futures contracts are traded exclusively on regulated exchanges and are settled daily based on their current value in the market.

   an option on a futures contract.