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NetThruPut Inc. (NTP)

NetThruPut Inc. (NTP). PRMIA Luncheon May 31/06. NTP Introduction. NTP is an electronic exchange that allows energy market participants to buy and sell online the most commonly traded crude oil types in Western Canada (physical volumes).

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NetThruPut Inc. (NTP)

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  1. NetThruPut Inc.(NTP) PRMIA Luncheon May 31/06

  2. NTP Introduction • NTP is an electronic exchange that allows energy market participants to buy and sell online the most commonly traded crude oil types in Western Canada (physical volumes). • Customers are Canada’s largest oil producers, marketers, refiners, and financial participants. • Full clearing anonymous exchange. • Originated within Enbridge in 1997 – commercial trading commenced Jan/99.

  3. NTP Trading Region Edmonton Hardisty Kerrobert Milk River Cromer Source: Canadian Energy Pipeline Association – March 7, 2005

  4. NTP Operations • Trade approximately 260,000 bbls/day of physical oil (no financial products). Record volumes of 375,000 bpd for June/06 • Annual notional value of Cdn$5-6B (primarily goes to delivery) • NTP’s system currently resides on 355 desktops at 90 companies in Canada. • NTP administers all pipeline nominations to ensure physical delivery. • List 40 oil grades at 5 trading hubs. • Complete clearing services.

  5. NTP Trading Screen

  6. NTP’s Clearing Operations • NTP administers open and secured lines under Board approved Credit Policy. • Unsecured credit lines primarily available to investment grade counterparties only. Remainder post margin to cover positions. • All open lines approved by insurer (EDC). Insurance will cover MtM and Contract Value losses. • System automatically halts any trades that would exceed credit limit. • No events of payment default in 7 year history.

  7. Risk Management • Risk management model based on industry best practices. Standard metrics used (contract value, MtM and VaR) • NTP system does not allow trades that could result in excess position. • Virtually all index based deals (i.e. WTI +/- a negotiated differential). Price movement risk limited to movement in differential. • Limited forward curves available for Canadian crude oil differentials.

  8. NTP Clearing Model

  9. Benefits of Netting

  10. Netting Cont’d

  11. Risk Measurement Example Settled

  12. Other Risk Factors • Conservative VaR (99% and 5-10 days liquidation). Result of relatively illiquid market. • Customer reporting – shows summary credit usage by Contract Value, MtM and VaR • NTP building a forward curve for Canadian crudes– slow process! Use NTP price for MtM and prompt month VaR • U.S. Market - Platt’s and Argus pricing provides market in spot – nothing forward (proxy with Nymex rolls)

  13. Risk benefits to shippers • Allows them to mitigate credit risk through netting and diversification. • L/C participants get much more leverage – able to do more business. • High oil prices and few counterparties = unacceptable risk exposure • Reduces costs of capital, L/C fees, and use of bank lines. • Attractive to financial participants – further diversification. • NTP can also clear bilateral OTC transactions.

  14. Future Outlook on Risk Items • Will do back-testing to see how well VaR measurements are covering movements • Look for correlations between various crude types to determine VaR offsets. • Continue to use NTP figures to enhance spot and forward curves for Canadian crudes. • Likely increase usage of margin to secure positions.

  15. NetThruPut Inc.(NTP) PRMIA Lunch May 31/06

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