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LNG arbitrage, hedging and risk management
Posted by Administrator on 12/16/2008
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A three day course example
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Course Outline

This 3 day intensive course will give you the cutting-edge knowledge needed in today’s complex LNG market. These three days will increase your expertise in the LNG market, raise your knowledge to a higher level and enhance your performance.

Course Objectives

  • Understand the current and global drivers in world natural gas and LNG markets
  • Understand the structures with which LNG is traded and risks are hedged
  • Discover the trading opportunities, risks and hedging strategies in LNG
  • Assess the benefit of having LNG in a portfolio of gas operations

Case Studies

We use cases throughout this course in various forms. The cases allow the practical application of participants’ newly-acquired knowledge. Case studies also stimulate independent thinking and discussion among the participants.

Day 1

Overview of Natural Gas Markets

  • Liberalisation and regulation, opportunities to trade
  • Supply chain
  • Demand and supply
  • Price drivers
  • Main trading hubs
  • Physical flexibility tools
  • Storage
  • Hub services

Overview of LNG markets

  • Relationship between natural gas and LNG trading
  • LNG value chain
  • Supply and demand
  • LNG Trade Flows
  • Competition between markets
    • LNG Supply: Atlantic Basin, Pacific Basin, Middle East and new producers
    • LNG Import: Atlantic Basin, Pacific Basin
  • Pricing
    • Contract structures
    • LNG spot price, netbacks
  • Players in LNG market
  • Market trends
  • Future Outlook

Natural gas and LNG trading markets

  • Players in the trading markets: banks, brokers, traders, end users, producers
    • What is their role?
    • Why do they trade?
    • How do they make money?
  • Energy markets and how they function
    • What is OTC?
    • What is exchange trading?
    • OTC versus exchange trading
    • Spot versus forward trading
  • Forward and futures markets and how they function

Trading

  • Trading physical commodity
  • Hedging of price and volume
  • Demand impact on trading
  • Selling or trading management tools for forecasting and portfolios
  • Hedging against the unknown
  • Arbitrage - local and international

Day 2

Features derivatives

  • What are derivatives
  • History
  • History disasters
    • Enron
    • Societe General
    • LTCM
    • and others

Forwards and swaps: the basics

  • Forwards and futures (example of natural gas swap)
  • Swaps (example of natural gas swap)
  • Definitions
  • Hedging with futures and forwards
  • Hedging with swaps

Basics of commodity options

  • Calls and puts
  • Difference between buying and selling options
  • Terminology
    • Moneyness
    • Expiration
    • Intrinsic value
    • Premium strike price
    • Time value
  • Cap
  • Floor and collar
  • Hedging applications

Relation spot and forward markets

  • Demand, supply and pricing
  • Inventories
  • Theory
  • Storage and futures
  • Inventories and futures
  • Prices
  • Convenience yield
  • The forward value
    • Backwardation and contango
    • Forecasts versus forward prices

Concept of hedging

  • What is hedging
  • Hedging efficiency
  • Optimal hedge ratio
  • Cash flow at risk
  • Dynamic hedging

Day 3

Forward hedging strategies for natural gas and LNG

  • Trading and hedging strategies: optimising return while minimising risk
  • Hedging against spot price risk
  • Hedging and liquidity risk
  • Evaluation of trading and hedging strategies
  • Roll-over hedge
  • Value-at-risk in a trading organisation
  • Using risk capital: matching return with risk
  • Case studies: 5 real life LNG hedging scenarios

Structured products in commodity markets

  • Decomposing contracts: financial engineering
  • Spreads
    • Calendar and locational spreads
    • Spark and dark spread
    • Crack spread
    • Cross-correlations between natural gas, oil, coal and electricity markets

Risks and risk management

  • Identification and quantification of risk
  • Counter party and credit risk
  • Typical trading strategies and their associated risks
  • Main sources, scale and timing of risk
  • Static reporting and dynamic management
  • Risk/reward strategies
  • Mark-to-market
  • Value-at-risk
  • Correlation and volatility

Last changed: 01/08/2009 at 10:44 pm

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