the geographical region of the land mass, including islands, bordering the Pacific Ocean. As applied typically in liquefied natural gas (LNG) trading, the Pacific Basin LNG market consists of present and future producers: Abu Dhabi, Australia, Brunei, Indonesia, Iran, Malaysia, Oman, Papua New Guinea, Peru, Qatar, Russia, the US and Yemen; and current and future LNG consumers: China, India, Indonesia, Japan, Pakistan, Mexico’s West Coast, Singapore, South Korea, Taiwan, Thailand and the US West Coast. Note that a Pacific Basin LNG producer might not be physically located in the Pacific Basin itself. see also Atlantic Basin
see API regions
site of the high-voltage switchyard in Arizona linking the utilities of the southwest US with those of California.
a market for contracts where delivery is settled in cash, rather than by delivery of the physical product on which the contract is based.
a term used to classify curves for which the path is described by a mathematical function rather than a set of co-ordinates.
a path-dependent option has a payout dependent on the price history of the underlying over all or part of the life of the option. The most common form of option in over-the-counter energy risk management (the Asian option) is a path-dependent option, as are lookback and barrier options.
any option for which a premium is not paid at the time the option is purchased. Payment of the premium may be deferred until expiry, when it may be deducted from any payout.
a graph of a transaction’s payoff as a function of the value of the underlying at expiration.
periods during the day when energy consumption is highest. The introduction of additional gas or electricity to cover this demand is known as peak shaving.
during times of peak demand, supplies from sources other than normal suppliers are used to reduce demand on the system – for example, storage from a salt cavern.
electricity-generating equipment normally operated to serve loads only during annual peak loads or during system emergencies. Often combustion turbines.
an acronym for points d’échange de gaz, which are trading hubs for the wholesale natural gas markets and are virtual points in each balancing zone.
letter of credit used to guarantee performance under a contract. see also letter of credit
chemicals produced from hydrocarbons used, for example, in the manufacturing of products such as plastics.
The Phelix or Physical Electricity Index is the reference price for power in Germany and large parts of central Europe. It is calculated daily as the average price for base load (Phelix Day Base) and peak load (Phelix Day Peak) electricity traded on the European Energy Exchange Spot Market.
Hourly weighted average index price per day for the hours 1–24
Hourly weighted average index price for the hours 9–20 (8:00am–8:00pm)
synonymous with wet. Crude oil or oil product with a precise loading window attached to it. For crude, the loading window is normally three to five days.
companies that transport and use storage facilities in a pipeline system are obliged by the pipeline operator to keep their input and offtake volumes in balance (within tolerance limits). If there is a positive or negative pipeline imbalance, the transporting firms are heavily financially penalised by the pipeline.
where large pipelines meet and gas can be switched from one pipeline to another, such as Henry Hub in the US.
The PJM Interconnection electricity market for Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and Washington, DC. The Nymex trades a PJM Electricity Futures – Monthly Contract.
energy price information provider, specialising in news, prices, data, analysis, analytical tools, research and consultancy services.
Warsaw-based electricity exchange operating a day-ahead spot market for companies trading on the Polish power market. The Polish Power Exchange was launched in July 2000.
monitored by the US Environmental Protection Agency, US-based companies have a limit on the various types of pollution they can produce. If the actual pollution they produce is below this level, they have pollution credits they can trade. This process is known as emissions trading. An example of a US-based emissions market is SO2 allowances trading.
a switching and interconnection facility in a physical location through which counterparties connect.
the collective term for an owner’s holdings of assets, liabilities, transactions and/or trades.
use of a linear or quadratic model to structure a portfolio to maximise or minimise yield and long-term rate sensitivity, or to increase or reduce exposure to certain industries, market sectors or macro-economic factors, subject to pre-specified constraints.
rate structure in which each customer in a given class is charged the same rate for a commodity as every other customer, regardless of the cost of serving different customers in the same class. Also refers to rates set for all customers in a given territory, regardless of their distance from the point where the given service or commodity is supplied.
another word for electricity.
an entity set up to provide an efficient, competitive trading arena, open on a non-discriminatory basis to all electricity suppliers, which meets the loads of all exchange customers at efficient prices.
(US) wholesale power entity that has registered with the Federal Energy Regulatory Commission to trade wholesale power with other power marketers and public entities at market-based prices. Power marketing companies include investor-owned, utility-affiliated companies; natural gas marketing companies; financial intermediaries; independent power producers; and entrepreneurs. Typically power marketers do not own generating facilities. see also electricity utility
a system of trading wholesale electricity that determines which generating sets or plants are called to meet demand for power at any particular time and sets the price of power for that period. Pools are deemed necessary by their proponents because electricity generally cannot be stored easily and demand has to be met through simultaneous production.
a Paris-based company operating a European energy exchange that provides an electronic market for the trading of energy contracts in Europe. It was created in 2001 with the opening of the European electricity market, and encompasses a network of over 75 European members, including energy producers such as RWE, EDF, Gaz de France, Electrabel and Endesa, as well as end-users, banks, brokers, traders and retailers. www.powernext.fr
referring to pre-Front End Engineering and Design, for pre-project planning.
to schedule for delivery of physical power on a day-ahead basis.
instruments linked to the degree of rainfall or snowfall. The party taking out a precipitation swap would receive payment for precipitation above a certain level.
see option
a strategy that aims to reduce the cost of an option or other derivative. There are three main ways to achieve this: selling a second derivative to reduce the overall cost of a strategy; limiting the payout profile of the derivative; or accepting payments below market rates.
price control over electricity or gas prices.
potential fluctuations in the price of the underlying energy commodity.
a market where new securities are traded.
the last traded price at any given time for a given futures contract.
designed to help energy companies develop strategies to protect their earnings. PaR extends quantitative market risk management beyond speculative trading operations, to cover all physical energy activities.
involves a corporate sponsor investing in and owning a single-purpose industrial asset –usually with a limited life – through a legally independent entity financed with non-recourse debt.
physical crude for immediate delivery.
the first month forward for which a futures contract is being traded. Also known as the front month.
entering into a standardised contract to take a view, capture market price changes or put capital at risk. Prop trading is conducted through trades in a bank or energy firm’s own account rather than with customer capital.
regulates intrastate electricity transactions and retail electricity service. Although the various PUCs work independently of the Federal Energy Regulatory Commission (Ferc), they must still abide by Ferc guidelines, as established by various federal statutes. They are also commonly known as Public Service Commissions or PSCs.
US federal act of 1935 that grants the Securities and Exchange Commission, a US financial regulator, the power to prevent electric public utility holding companies from having generation assets in two areas of the US that are not geographically adjoining. In August 2005, the Energy Policy Act of 2005 repealed PUHCA, effective in February 2006. It was replaced by a much weaker set of laws called the Public Utility Holding Company Act of 2005.
US federal act passed in 1978 that requires electricity utilities to buy wholesale power from certain types of independent power producers that produce electricity with renewable resources. Although still important, open access to electric power transportation has reduced the significance of Purpa.
see Public Utility Holding Company Act
the amount of electricity and capacity available for purchase from outside a utility system.
see Public Utility Regulatory Policies Act
an option giving the buyer, or holder, the right, but not the obligation, to sell a futures contract at a specific price within a specific period of time in exchange for a one-off premium payment. It obligates the seller, or writer, of the option to buy the underlying futures contract at the designated price, should the option be exercised at that price. see also call option
an options position comprised of the purchase of a put option at one level and the sale of a put option at some lower level. The premium received by selling one option reduces the cost of buying the other, but participation is limited if the underlying goes down. H see also bear spread, bull spread, call spread, vertical spread
put-call parity states that the payout profile of a portfolio containing an asset plus a put option is identical to that of a portfolio containing a call option of the same strike on that same asset (with the remainder of the money earning the risk-free rate of return). This can be used to arbitrage a position.