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Frequently Asked Questions
Energy Trading Terms | Pricing Terms | Natural Gas Terms |
Backwardation Also called inverted market, market situation in which futures prices are progressively lower in
the distant delivery months. Indicates supply shortages. Opposite of contango.
Close The period at the end of the trading session, designated by the exchange, during which all transactions
are considered complete.
Contango Market situation in which prices in succeeding delivery months are progressively higher than in the nearest delivery month.
Direct Access The ability of a retail customer to purchase commodity electricity directly from the wholesale market rather than through a local distribution utility. Having market prices is called market access.
Firm Gas Gas sold on continuous, non-interruptible terms.
Firm Power Power or power-producing capacity intended to be available at all times during the period covered by a guaranteed commitment to deliver, even under adverse conditions.
Fundamental Analysis The study of basic, underlying factors that will affect the supply and demand of the commodity being traded in futures contracts.
Futures Market A trade center for quoting prices on contracts for the delivery of a specified quantity of a commodity at a specified time and place in the future.
Good Til Canceled (GTC) Order An order that is valid at any time during trading hours until executed or canceled or until the futures contract expires. Also called open order.
Interruptible Gas Gas sold to customers with a provision that permits curtailment or cessation of service at the discretion of a member of the supply chain under certain circumstances, as specified in the service contract.
Load The amount of specific energy delivered or required at any specific point or points on a system. The requirement originates at the energy-consuming equipment of the consumers.
Notional Quotation An offer to sell gas based on the price at the time the offer is made. Because prices
constantly change, a notional amount is subject to change and is therefore an example of an offer rather than a firm offer.
Overbought A technical opinion that the current market price is high in relation to a price-based indicator such as a moving average.
Oversold A technical opinion that the current market price is low in relation to a price-based indicator such as a moving average.
"Round Tripping" or "Wash" Trading The practice whereby total trading volumes are inflated and a market
made to appear more liquid as two companies buy and sell the same volume of energy at the same price to each other. This practice was more common in electricity markets because gas trading already had sufficient volumes to be a healthy, properly functioning market.
Settlement The daily price established by the exchange to even up positions, clear all trades, and settle all accounts between members for each contract month. This is the weighted average price during the last thirty minutes of trading.
Short Covering The purchasing of gas contracts to offset currently held short positions. The market participants are buying gas contracts to satisfy the contracts previously sold. A high daily volume of trades that results in a reduction of the total open interest is evidence short covering is occurring.
Technical Analysis An approach to forecasting commodity prices that examines patterns of price change, rates of change, and changes in volume of trading and open interest, without regard to underlying fundamental market factors.
Pricing Terms
Basis The difference between the cash or spot price of a commodity and the price of the futures contract for the same commodity. For gas, basis reflects the locational difference between the Hub and a delivery point. The delivery point may be a point on a pipeline or a city gate location.
Bundled vs. Unbundled Rates A bundled rate has a single price for the commodity. Unbundling means the various costs are broken out and shown separately. Unbundling is necessary when a gas user buys his or her own gas and only pays the utility for distribution services.
Burnertip Price Estimated all-in cost of gas to end-user.
Hedging Taking a position in the futures market as a temporary substitute for a cash transaction that will occur later.
Index Price The published result of a price survey conducted by an index maker. Commonly used indexes in natural gas are Inside FERC, Natural Gas Intelligence, and Gas Daily. The index maker surveys active traders during the last few trading days of the month and finds the range and the weighted average price for certain geographic trading points. Indexes are widely used in the gas contracts. An index is a historical price.
Market-Based Pricing Prices of electric power or other forms of energy determined in an open market system of supply and demand under which prices are set solely by agreement as to what buyers will pay and sellers will accept. Such prices could recover less or more than full costs, depending upon what the buyers and sellers see as their relevant opportunities and risks.
Market Clearing Price The price at which supply equals demand for future energy delivery.
Spot price The price for a one-time open market transaction for immediate delivery of a specific quantity of product at a specific location where the commodity is purchased "on the spot" at current market rates.
Strike Price The price, agreed to by the parties, at which the underlying commodity or futures contract will move from seller to buyer.
Tariff, Rate, Rider The terms tariff and rate are used interchangeably as the definition of the approved charges of a utility. A rider is an adder to a rate. The fuel adjustment rider is the most common. However, utilities can have a variety of riders that collect a single expense.
Natural Gas Terms
Balancing The delivery of gas requires that all parties work together so that gas going into the interstate and local systems matches gas being used. Various parties in different jurisdictions balance physical supply and demand. When buying sales service from the utility, it is not a concern. Marketer-supplied gas must be balanced via adjusting the amount going into the system to match what is being used, net of any storage. In lieu of balancing, "cash out" or the buying or selling of imbalances is done by the utility.
City Gate A point or measuring station at which a gas distribution company receives gas from a pipeline company or transmission system.
Design Day A 24-hour period of demand used for planning gas capacity requirements.
Distribution Rate The transportation charge the local distribution company charges to distribute gas from its city gate to the end-user. This reflects the charge of distributing the gas from the city gate to the end-user but not the cost of the gas itself.
Gas Measurements Cubic foot (cf), natural gas: The amount of natural gas contained at standard
temperature and pressure (60 degrees Fahrenheit and 14.73 pounds standard per
square inch) in a cube whose edges are one foot long.
Mcf: One thousand cubic feet.
MMcf: One million cubic feet.
Bcf: One billion cubic feet.
Tcf: One trillion cubic feet.
Therm: A unit of heating value equivalent to 100,000 British thermal units (Btus).
MMBtu: A thermal unit of energy equal to 1,000,000 Btus, i.e., the equivalent of 1,000 cubic feet of gas having a heating content of 1,000 Btus per cubic foot, as provided by contract measurement terms. Also dekatherm.
Gas Supplier, Marketer, and Broker A gas supplier is any party that provides the physical commodity; this can be a producer or a utility as well as a marketer. Marketers take title to the gas commodity and resell it, bundled or unbundled. Typically, marketers have collected for various delivery-associated costs; their profit margin is usually included in interstate transportation service charges. A broker does not take title to the gas but acts as a go- between to arrange deals for sellers and buyers. Either party may pay the broker for his or her services.
Heating Degree-Days A measure of how cold a location is over a period of time relative to a base temperature, most commonly specified as 65 degrees Fahrenheit. The measure is computed for each day by subtracting the average of the day's high and low temperatures from the base temperature (65 degrees), with negative values set equal to zero. Each day's heating degree-days are summed to create a heating degree-day measure for a specified reference period. Heating degree-days are used in energy analysis as an indicator of space heating energy requirements or use.
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Interstate Various companies throughout Nigeria operate interstate natural gas pipelines.
Load Factor (LF) The relation of the peak day to the annual use, express as a %. LF = Annual use therms / (max day therms x 365). Load factor indicates how consistent a gas userÅfs fuel consumption is over a year. In general, higher load factor customers are more attractive to gas suppliers because their use is more constant and predictable. For example, a load factor of 100% indicates a customer who uses exactly the same amount of gas every month all year long. Transit bus fleets are typically very high load factor customers (90% or higher) compared with commercial buildings using gas mainly for space heating, which is unpredictable and very weather dependent (usually less than 20% load factor).
Local Distribution Within the gas business, the final distributing utility is called the "LDC" even when the entity Company (LDC) is not a company.
Wellhead (Gas Supply )Major oil and gas companies along with smaller independent oil and gas companies explore for natural gas. The wellhead is the equipment placed on top of each well to control flow and pressure. Each of the thousands of wells is commonly referred to as a wellhead. Wellhead price might also be referred to as supply price, commodity price, index price, or gathering point price.
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