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Natural Gas Hedging: A Primer for Utilities and Regulators

What commissions need to learn.
What LDCs should already know.
Fortnightly Magazine - October 1 2001
  1. close of the futures market in performing evaluations
  2. FASB 133/138 indicates that price changes for the cash and derivative markets need to be compared over time and it must be demonstrated that the expected difference falls within certain bounds.
  3. For examples of methods used to evaluate the relationship between prices at different locations see," A. Serletis and J. H. Herbert "Hidden Messages in Some Key North American Energy Prices, Energy Economics 21, 1999, 471-483.
  4. One idea here is to market the gas in storage on a regular basis. This would be consistent with the FASB standard for financial hedges. The value of the stored gas thus derived could also be compared to the full cost of storage.
  5. For discussions of the economic value of storage and of methods for estimating this value, see "The Value of Underground Storage in Today's Natural Gas Industry," John H. Herbert et al. Energy Information Administration, 1995." See also, "Gas Storage: What Moves the Market & What Doesn't," by John H. Herbert, James M. Thompson, and Christopher Ellsworth, , December 1997.
  6. For conventional oil and gas storage reservoirs, deliverability is dependent on the amount of gas in storage. The greater the amount of gas in storage, the greater the pressure of the reservoir and the greater the deliverability. For salt cavern storage this is not the case.
  7. See John H. Herbert, "The Gas Merchant Business: Still a Place for LDCs?" , July 1, 1999.

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