a three-peak pattern resembling the ‘head and shoulders’ outline of a person, which is used to chart stock and commodity price trends. The pattern indicates the reversal of a trend. As prices move down to the right shoulder, a head and shoulders top is formed, meaning prices should be falling. A reverse head and shoulders pattern has the head at the bottom of the chart, meaning prices should be rising.

   a measure of how efficiently an electricity generator converts thermal energy into electricity, and a key determinant of the spark spread. More precisely, the heat rate is the ratio of British thermal units of fuel consumed to kilowatt hours of electricity produced. Hence, the lower the heat rate, the higher the conversion efficiency.

    see degree day

   typically crude oil with an API gravity of less than 28 degrees.

   a heavy refined distillate consisting largely of residues from crude oil refining that are blended with gasoil fractions. The heaviest grade fuel oils tend to be used in ships’ boilers, while lighter fuel oil grades are used in industry, such as in steel manufacture.

   (fat-tailed) – a distribution in which the extreme portion of the distribution (the part furthest from the median) spreads out further relative to the width of the centre (middle 50%) of the distribution than is the case for the normal distribution. For a symmetric heavy-tailed distribution, the probability of observing a value far from the median in either direction is greater than it would be for the normal distribution. Heavy-tailed describes a distribution with excess kurtosis.

   the initiation of a position in a futures or options market that is intended as a temporary substitute for the sale or purchase of the actual commodity. For example, the sale of futures contracts in anticipation of future sales of cash commodities as a protection against possible price declines, or the purchase of futures contracts in anticipation of future purchases of cash commodities as a protection against the possibility of increasing costs.

   hedge accounting is the practice of deferring gains and losses on financial market hedges until the corresponding gain or loss in the underlying exposure is recognised. It allows companies to incorporate the cost of hedging into the cost of the exposure. Gains are thereby offset against losses. This reduces the volatility of earnings. see also accrual accounting, mark-to-market

   in US accounting terminology, a criteria that must be met in order to use hedge accounting for US financial reporting. This provision has at times proven problematic in the energy industry where partial hedges for such exposure components as basis risk are widely used. Under the rules of FAS 133 when testing for hedge effectiveness, only interest rate exposures can be broken down into their component parts. see also FAS 133

   a private pool of assets, which is often managed aggressively. Hedge funds have long been active in speculative trading on crude oil markets.

   the ratio, determined by the option’s delta, of futures to options required to establish a position involving no price risk.

   the small amount of liquefied natural gas (LNG) remaining on board a vessel (or storage) after discharge of the regular LNG cargo, and is used to insulate the LNG storage tanks and is also available as fuel for carrier ship. The heel is considered to exist both before and after discharge, as the minimum quantity of LNG necessary to be retained in holding tanks, and also includes LNG that is consumed en route to the discharge destination as fuel.

   the delivery point for the largest Nymex natural gas contract by volume. Henry Hub is in Erath, Louisiana, and is a large system of pipeline interconnects.

   ICIS Heren is a world-leading publisher of gas, power and carbon market information. In 2008, ICIS, part of Reed Business Information UK, acquired Heren Energy (now ICIS Heren). www.heren.com

   a unit of frequency equal to one cycle per second and measured by changes in cycles or state.

   a method of calculating value-at-risk (VaR) that uses historical data to assess the impact of market moves on a portfolio. A current portfolio is subjected to historically recorded market movements; this is used to generate a distribution of returns on the portfolio. This distribution can then be used to calculate the maximum loss with a given likelihood – that is, the VaR. Because historical simulation uses real data, it can capture unexpected events and correlations that would not necessarily be predicted by a theoretical model.

   the annualised standard deviation of percentage changes in futures prices over a specific period. An indication of past market volatility.

   liquefied natural gas with a British thermal unit content that is higher than the standard on US and Canadian pipelines, since it contains small amounts of natural gas liquids (NGLs), and may also be referred to as Rich LNG. The NGLs, which are typically ethane, propane and butane, can be extracted following regasification and used as petrochemical feedstocks. see also lean LNG

   a major US oil refinery centre in Texas on the US Gulf Coast. It is also a pricing and major market point for natural gas in the US.

   high-sulphur fuel oil.

   organic compounds consisting of hydrogen and carbon. They may exist as solids, liquids or gases.

   electrical energy produced by flowing water. A hydroelectric power plant uses the movement of water to spin a turbine generator that produces electricity.