Post on 04-Jun-2018
3
Webinar Format
• Agenda:
– 10:00-10:30 AM: Presentation by
Kobe Cannaerts of E&C America, Inc.
– 10:30-11:00 AM: Q&A Session
• Have a question? Type it in the chat box and
we’ll address it during the Q&A.
• Please retain the “raise your hand” option for
the Q&A. If we don’t get to your questions,
don’t worry, simply type it in the chat box.
6
The roller coaster…
0
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/20
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/4/2
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/4/2
010
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/4/2
012
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/20
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10
/4/2
013
3/4
/20
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8/4
/20
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1/4
/20
15
NYMEX Henry Hub Natural Gas Futures Electronic (Front Month)
14 years
back
7
… on a long slide down?
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16
1/2
/20
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/2/2
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012
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/20
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10
/2/2
014
1/2
/20
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4/2
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15
NYMEX Henry Hub Natural Gas Futures Electronic (Front Month)
7 years
back
8
…or not at all?
1
2
3
4
5
6
7
03/0
1/2
012
03/0
3/2
012
03/0
5/2
012
03/0
7/2
012
03/0
9/2
012
03/1
1/2
012
03/0
1/2
013
03/0
3/2
013
03/0
5/2
013
03/0
7/2
013
03/0
9/2
013
03/1
1/2
013
03/0
1/2
014
03/0
3/2
014
03/0
5/2
014
03/0
7/2
014
03/0
9/2
014
03/1
1/2
014
03/0
1/2
015
03/0
3/2
015
03/0
5/2
015
Henry Hub Front Month
3.5 years
back
?
9
“Winter is Coming”
2.5
3.0
3.5
4.0
4.5
Nove
mb
er
Dece
mb
er
Ja
nu
ary
Fe
bru
ary
Ma
rch
Ap
ril
Ma
y
Ju
ne
Ju
ly
Au
gu
st
Se
pte
mb
er
Octo
be
r
Rolling 12-Month Strip Historical Trend Comparison
2011-2012 2014-2015
10
Rig Count Decreases by Shale Deposit
86/51%
51/45%
240/47%
492/45%32/37%
14/36%
83/18%
Total:
666/44%
Total and percentage rig count decreases by shale deposit since 1/1/2014
11
Gas Production Efficiency Gains
0
10
20
30
40
50
60
70
80
0
200
400
600
800
1000
1200
1400
1600
1800
1/1
/200
4
7/1
/200
4
1/1
/200
5
7/1
/200
5
1/1
/200
6
7/1
/200
6
1/1
/200
7
7/1
/200
7
1/1
/200
8
7/1
/200
8
1/1
/200
9
7/1
/200
9
1/1
/201
0
7/1
/201
0
1/1
/201
1
7/1
/201
1
1/1
/201
2
7/1
/201
2
1/1
/201
3
7/1
/201
3
1/1
/201
4
7/1
/201
4
1/1
/201
5
Baker Hughes Oil and Gas Split Gas Rig Count
EIA STEO Actual Natural Gas Total Dry Production
12
US LNG Project Status
Phase Name In-service Date Capacity (Bcf/day)
Under construction Sabine Pass train 1-4 2016* 2.34
Under construction Dominion Cove Point 2017 0.65
Under construction Freeport LNG 2018* 1.73
Under construction Corpus Christi LNG 2018 1.76
Under construction Cameron LNG 2019* 1.56
Subtotal 8.05
Planned Sabine Pass 5-6 ? 1.1
Planned Lake Charles Export 2019 1.99
Planned Jordan Cove LNG ? 0.80
Planned Alaska LNG ? 2.61
Planned Oregon LNG 2019 1.17
Total 15.71
*Estimated in-service dates
14
Electricity Generation by Fuel
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
200000
Jan
-04
Ap
r-04
Jul-
04
Oct-
04
Jan
-05
Ap
r-05
Jul-
05
Oct-
05
Jan
-06
Ap
r-06
Jul-
06
Oct-
06
Jan
-07
Ap
r-07
Jul-
07
Oct-
07
Jan
-08
Ap
r-08
Jul-
08
Oct-
08
Jan
-09
Ap
r-09
Jul-
09
Oct-
09
Jan
-10
Ap
r-10
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10
Oct-
10
Jan
-11
Ap
r-11
Jul-
11
Oct-
11
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-12
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r-12
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12
Oct-
12
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-13
Ap
r-13
Jul-
13
Oct-
13
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-14
Ap
r-14
Jul-
14
Oct-
14
Jan
-15
Mill
ion k
Wh
Net Electric Generation from Coal Net Electric Generation from Natural Gas
15
Clean Power Plan Implementation
Final Rule DuePlans due from
States
EPA Proposes
Clean Power Plan
States submit initial
plans/request
extensions
Interim Reductions
Begin/Stats submit
Interim report
Full compliance
with Emissions
Rate Standard
2013-2014 2015 2017-20182016 2020-2022 2030
16
Clean Power Plan Building Blocks
1647
1005
75178
45 216
130
0
200
400
600
800
1000
1200
1400
1600
1800
2012 FossilRate
Heat Rate Redispatch to PreserveNuclear
Expand RE Expand EE 2030 Standard
Em
issio
n R
ate
(LbC
O2 p
er
MW
h)
EPA's Best System of Emission Reduction (BSER) Determination, US Average
EPA started
with 2012
fossil rate
Application of
blocks
results in
2030
standard
Blocks represent emission rate reduction options
Block #1 Block #2 Block #3 Block #4
Range
across states
from 0
lb/MWh to
665 lb/MWh
17
The pitfalls of buying energy
Wishful
thinking
Greed
“This or that reason will
make prices fall again.”
“If the market rises
further, we are dead.” “Such a good price, we
shouldn’t miss it.”
“I feel that it’s going
to fall again.”
FearPrice fixed
Market average
PanicFIX
FIX
FIX
FIX
Wait in a
rising market
Fix too soon
in a falling
market
Fail to fix (enough) at
opportunity moments
18
… and how to avoid them
Don’t buy as
it falls tactics
Opportunity
hunting
strategy
Price fixed
Market averageStop loss
strategy FIX
FIX
FIX
FIX
FIXFIX
FIX
20
Gazing into the mist
Short term Long term
MARKET ANALYTICS
Actively monitor markets for
hedging opportunities
RISK MANAGEMENT
work to shield clients from major price
increases
MARKET ANALYSIS
STRATEGY
At which pace will you take a
rise or fall in energy prices?
21
Steps in setting up a strategy
• Budget risk
• Market risk
• Survival risk
Determine the
strategic risk profile
• Averaging
• Fixing
• Fixing & unfixing
• Spot market optimization
• Advanced: options, commodity swaps, etc.
Determine the tactical
hedging tools
• Hedging horizon
• Choice of contract
• Fixing tunnels
• Stop loss limits
• Protections against operational risks
Edit strategy
note
22
Setting up a strategy
Falling cost of energy
= falling price of
product ?
(and to some extent
vice versa)
Is the energy cost a
high proportion
of the margin ?
MARKET RISK STRATEGY
• keep close to the market
average
• determine at what pace the
product prices react
• adapt the forward hedging
strategy to it
SURVIVAL STRATEGY
• keep close to the market
average
• ‘Lock in a margin’ when possible
YES
NO YES
BUDGET RISK STRATEGY
• aim at stabilizing budgets inside
the business’s cycles
NO
23
Approaches to price fixing
Prices
floating on
spot
markets
One shot
forward
fixing of
prices
PRICE MANAGEMENT
Use mixtures of forward
hedges at different
moments and spot pricing
Advantages:
- A more refined risk
managed
- Better responsiveness
to market opportunities
24
Market risk
strategy
Survival risk
strategy
Budget risk
strategy
1. Buy the dips Be careful with
buying too much
too far into the
future
When the price
level is reasonable
compared to
income: buy large
chunks
Buy large chunks
for several years
into the future
2. Buy at regular
intervals
More buying
moments or
average prices
More buying
moments or
average prices
Fewer buying
moments
3. Buy when the y-
o-y budget risks
exceeding
predefined limits
Take limits that
are sufficiently
high
Take limits that are
sufficiently high
Take limits that
are in line with
general budgeting
requirements
Setting up a strategy
25
Incremental price locks technique
Y + 2 timeY + 1Q1 - Y
START OF THE
CONTRACT
Y + 3
START OF NEXT
CONTRACT
START OF NEXT
CONTRACT
energy price
26
Block model
3,88
3,89
3,78 4,15
3,77 4,3 4,93
0
50
100
150
200
250
300
01
/01
/14
01
/22
/14
02
/12
/14
03
/05
/14
03
/26
/14
04
/16
/14
05
/07
/14
05
/28
/14
06
/18
/14
07
/09
/14
07
/30
/14
08
/20
/14
09
/10
/14
10/0
1/1
4
10
/22
/14
11/1
2/1
4
12
/03
/14
12/2
4/1
4
MMBTu
2014
Hedge 1 Hedge 2 Hedge 3 Hedge 4 Expected consumption
27
Load following model
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
01
/01
/14
01
/15
/14
01
/29
/14
02
/12
/14
02
/26
/14
03/1
2/1
4
03
/26
/14
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/09
/14
04
/23
/14
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/07
/14
05
/21
/14
06/0
4/1
4
06
/18
/14
07
/02
/14
07
/16
/14
07
/30
/14
08
/13
/14
08/2
7/1
4
09
/10
/14
09
/24
/14
10
/08
/14
10
/22
/14
11
/05
/14
11
/19
/14
12
/03
/14
12
/17
/14
12
/31
/14
kW
h
Hedge 1 Hedge 2 Hedge 3 Hedge 4 Expected consumption (kw)
28
30
35
40
45
50
55
1/0
7/1
2
1/0
8/1
2
1/0
9/1
2
1/1
0/1
2
1/1
1/1
2
1/1
2/1
2
1/0
1/1
3
1/0
2/1
3
1/0
3/1
3
1/0
4/1
3
1/0
5/1
3
1/0
6/1
3
1/0
7/1
3
1/0
8/1
3
1/0
9/1
3
1/1
0/1
3
1/1
1/1
3
1/1
2/1
3
1/0
1/1
4
1/0
2/1
4
1/0
3/1
4
1/0
4/1
4
1/0
5/1
4
1/0
6/1
4
1/0
7/1
4
1/0
8/1
4
1/0
9/1
4
1/1
0/1
4
1/1
1/1
4
1/1
2/1
4
1/0
1/1
5
1/0
2/1
5
1/0
3/1
5
$/M
Wh
Aug/16 contract compared to all forward and spot Aug notations traded in the past 750 days
Perc10 zl Perc25 l Perc50 m Perc75 h Perc90 zh aug/16
Opportunity hunting
Buy less
(or sell)
Buy more
29
Opportunity hunting
Compared to what the market was
prepared to pay for a similar product, how
historically good is today’s price?
30
Example:
Opportunity hunting
Very low Perc 10 Only 10% of all prices are low er than this level
Low Perc 25 Only 25% of all prices are low er than this level
Middle Perc 50 50% of all prices are low er than this level
High Perc 75 75% of all prices are low er than this level
Very high Perc 90 90% of all prices are low er than this level
N+1 N+2 N+3
100% 75% 50%
75% 50% 25%
50% 25% 0%
25% 0% 0%
0% 0% 0%
0% 0% 0%prices > VH (90%)
Actual prices
VL (10%) > prices
L (25%) > prices < VL (10%)
M (50%) > prices < L (25%)
H (75%) > prices < M (50%)
VH (90%) > prices < H (75%)
Base (Henry Hub) Percentile
March 2015 2,89 1,20%
April 2015 2,59 0,00%
May 2015 2,49 0,10%
June 2015 2,51 0,40%
July 2015 2,57 0,70%
August 2015 2,60 0,90%
September 2015 2,62 1,00%
October 2015 2,66 0,10%
November 2015 2,79 0,10%
December 2015 2,97 0,20%
January 2016 3,08 0,80%
February 2016 3,07 2,50%
March 2016 3,03 2,60%
April 2016 2,91 1,90%
May 2016 2,92 1,90%
June 2016 2,95 2,30%
July 2016 2,99 2,80%
August 2016 3,01 3,30%
September 2016 3,00 3,70%
October 2016 3,03 3,30%
November 2016 3,11 3,00%
December 2016 3,30 2,90%
January 2017 3,44 5,20%
February 2017 3,42 7,40%
10-25%
25-50%
50-75%
75-90%
90-100%
31
Risk Management
• Market value = what is my price if I buy everything today?
• Portfolio value = what is my price if I buy everything today, taking into account what I have bought already? (E.g., the market is at 40 and you have bought 50% at 50, than your portfolio value is 45 and your market value 40)
• Risk limit = based on maximum year-on-year budget increase
• Maximum portfolio value = portfolio value + a value-at-risk calculation
3.0
3.5
4.0
4.5
5.0
5.5
6.0
12/2
1/1
2
01/2
1/1
3
02/2
1/1
3
03/2
1/1
3
04/2
1/1
3
05/2
1/1
3
06/2
1/1
3
07/2
1/1
3
08/2
1/1
3
09/2
1/1
3
10/2
1/1
3
11/2
1/1
3
12/2
1/1
3
01/2
1/1
4
02/2
1/1
4
03/2
1/1
4
04/2
1/1
4
05/2
1/1
4
06/2
1/1
4
07/2
1/1
4
08/2
1/1
4
$/M
MB
tu
gas 2014
Current portfolio value Current market valueMax Portfolio value Risk limit
Volume Portfolio Market
$/MMBTu MMBTu value value
2014 2.400 4,06 4,32
Portfolio Market
$ value value
2014 9.736,73 10.375,42
Budget-at-risk gas
32
KPI’s & SLA’s
Deadline compliance
• Deadlines are set for every task
• Reductions on fees when compliance drops below thresholds
Strategy compliance
• Audits of compliance with the strategy on an item-per-item basis
• Reductions on fees when compliance drops below thresholds
Savings
• Calculation of savings on:
• Contract negotiations
• Portfolio value vs benchmark price
• Refunding of invoice mistakes
• Reductions on fees when Savings / fees ratio drops below thresholds
System uptime
• Continuous monitoring of uptime
• Reductions on fees when compliance drops below thresholds
34
INDEPENDENTENERGY PROCUREMENT CONSULTANCYGas &
electricity
Focus on procurement
strategy, not on consumption
reduction
We are not a supplier,
trading house, or
brokerage.
CLIENT
SUPPLIERCONSULTANT
What do we do?
35
Integrated international approach
• Since its creation in 2005, E&C has grown
organically, responding to the request of our
clients.
36
Our services
Data management ePoint
Portfolio consultancy
Portfolio management
Documentation Visualisation Analysis Communication
Contracting
• Organizing RFP
• Define contract
choice
Risk
management
• Strategy
• Monitoring
Price lock
advice
• Market
intelligence
• Direct contact
Financial
controlling
• Market
intelligence grid
fees & taxes
• Budget analysis
• Bill validation
• Consumption
monitoring
Hedging decisions Quote Validation Trade Execution
38
Kobe Cannaerts
Managing Director, E&C America Inc.
d: (347) 443 9962 m: (646) 832 8054
More information?