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Basic Deal Types

Basic Deal Types. Physical/Cash Deals. Typically done as a balance of month or baseload transaction Generally is fixed price(risk is difference between fixed price and gas daily) or Gas Daily(riskless, flattens position). Physical/Cash Deals Example.

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Basic Deal Types

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  1. Basic Deal Types

  2. Physical/Cash Deals • Typically done as a balance of month or baseload transaction • Generally is fixed price(risk is difference between fixed price and gas daily) or Gas Daily(riskless, flattens position)

  3. Physical/Cash Deals Example • ENA buys Transco Z6 gas @ 3.35 for balance of the month 8/17/01-8/31/01 from ABC Corp $3.35 per mmbtu ENA ABC Physical Gas and Transco Zone 6

  4. Physical Index Deal • Gas usually transacted at a future point in time(term) • If we buy index gas, we profit if the price goes up, because we sell gas on the spot market to cover position at a higher price than purchased term gas

  5. Physical Index Example • ENA sells gas to DEF corp. at Henry Hub for IF-HH-.01 for 9/01 Physical Gas at Henry Hub DEF ENA IF-Henry Hub -.01

  6. Swing Swap • Financial transaction used to hedge fixed price physical risk for balance of month physical transactions • Example: ENA buys swing swap from GHI Corp. at NGPL-Midcon for 2.47 for 8/16/01 – 8/31/01 $2.47 ENA GHI GDP-NGPL/MIDCON

  7. Exchange of Futures for Physical (EFP) • One party gives futures contracts in exchange for physical gas • Basis risk is inherent in an EFP • EFP’s are generally used to fix the sale/purchase price for gas • A trigger is a hybrid form of an EFP • You can convert an EFP to phy Index by adding a basis swap

  8. EFP Example • ENA sells an EFP to JKL Corp. at Socal for +.35 and a posted price of 3.15 GAS @ Socal JKL ENA $3.15 + .35 =$ 3.50 NX1 $3.15 JKL

  9. Fixed for Float Futures Swap • Fixed Price vs. Floating price • Fixed price is the current market price, and the floating price is the Last 3 days price • Key factor to remember, if this fixed price swap is done with the NYMEX, the position must be closed prior to NX1 in order to avoid taking physical delivery at Henry Hub

  10. Fixed for Float Futures Example • ENA buys a futures swap from MNO Corp for $2.75 $2.75 ENA MNO NX 1

  11. Fixed for Float Index Swap • This type combines a fixed for float futures swap with a basis swap • Example: ENA buys index swap at ELPO/Permian for $2.90 from PQR Corp. $2.90 MNO ENA IF-ELPO/Permian

  12. Fixed for Float Index Swap • You would end up in same place if you did two separate transactions:Fixed futures swap & a basis swap. NX1 - .15 ENA PQR Basis Swap IF-ELPO/Perm $3.05 NX1 PQR Futures Swap

  13. Basis Swaps • Basis is the differential between Henry Hub and a published location(I.e. Inside Ferc Houston Ship Channel) • Basis risk can be defined as the risk that a change in price at one location is not related to the change in price of another location

  14. Basis Swap Example • ENA sells Pan/TX/Ok basis for NX1 +.09 to STU Corp. IF-PEPL STU ENA NX 1 + .09

  15. Gas Daily Index Swap • Exchanging floating price for fixed price • Floating price is Gas daily price(example GDP) and fixed price is the index(example Inside FERC) • Example: ENA sells GD Index swap to STU Corp. at HSC for Index - .01 GDP- HPL Ship Channel STU ENA IF- HPL Ship Channel - .01

  16. Gas Daily Fixed Price Swap • Fixed price gas daily’s for balance of month or after NX1 for the next month are simply fixed for floats • A fixed gas daily for forward months are a combination of two transactions: fixed for float and a gas daily index swap

  17. Gas Daily Fixed Price Examples • ENA agrees to buy a rest of month gas daily swap at a fixed price of $3.39 for 8/26-8/31 at Henry Hub from VXY Corp $3.39 ENA VXY GDP-HeHub

  18. Gas Daily Fixed Price Example (2): • ENA sells to VXY Corp a fixed price gas daily swap for Oct 01 at Henry Hub for 3.63 IF-Henry Hub ENA VXY $3.63 GDP-HeHub IF-Henry Hub VXY

  19. Trading Physical Gas in One location, priced at another location • This is generally done because a trader thinks the index price at the remote location(pricing location) is more beneficial than the physical location

  20. Example of deal involving 2 locations • ENA buys NGPL/OK-NW gas @ IF-MIDCON + .01 from VXY Corp. NX 1 + 0 NX 1 + 0 VXY ENA VXY IF- MIDCON IF-NGPL OK NW NGPL OK NW Gas IF NGPL OK-NW + .01 VXY

  21. Synthetic Storage • Not an actual physical storage deal, you are simply playing the spread between months at a given location. • The only money that changes hand are an administration fee(when applicable) and an exchange fee. • The exchange fee is the amount that is expected to be the differential between months

  22. Synthetic Storage Example • ENA agrees to inject gas (1BCF) in Sept 01 at Union/Dawn and Withdraw gas in Dec 01 for a fee of .16 per mmbtu from Z Corp $0 Dawn Gas ENA Z ENA Z Dawn Gas $0 Sept 01 Dec 01 ENA Pays YZ Corp $.08 per mmbtu ENA Pays YZ Corp $.08 per mmbtu

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