The document summarizes a webinar on energy procurement and risk management presented by E&C America Inc. It included a presentation on how energy markets work and the benefits of risk management strategies for companies. The webinar consisted of a presentation followed by a question and answer session. Key topics covered in the presentation included historical natural gas price trends, US LNG export projects, electricity generation trends, and Clean Power Plan implementation. Various risk management strategies and hedging techniques were also discussed to help companies manage volatility in energy markets.
NO1 Certified Amil Baba In Lahore Kala Jadu In Lahore Best Amil In Lahore Ami...
E&C America Webinar on Energy Procurement Risk Management
1. Webinar by E&C America Inc.
Energy Procurement:
How risk management
can benefit your
company
Watch the recording of the webinar here:
http://youtu.be/QG6WY6ebTlc
2. 2
A few words of introduction
Paul Cicio, President of IECA
3. 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.
10. 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. 11
Gas Production Efficiency Gains
0
10
20
30
40
50
60
70
80
0
200
400
600
800
1000
1200
1400
1600
1800
1/1/2004
7/1/2004
1/1/2005
7/1/2005
1/1/2006
7/1/2006
1/1/2007
7/1/2007
1/1/2008
7/1/2008
1/1/2009
7/1/2009
1/1/2010
7/1/2010
1/1/2011
7/1/2011
1/1/2012
7/1/2012
1/1/2013
7/1/2013
1/1/2014
7/1/2014
1/1/2015
Baker Hughes Oil and Gas Split Gas Rig Count
EIA STEO Actual Natural Gas Total Dry Production
12. 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. 14
Electricity Generation by Fuel
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
200000
jan/04
apr/04
jul/04
okt/04
jan/05
apr/05
jul/05
okt/05
jan/06
apr/06
jul/06
okt/06
jan/07
apr/07
jul/07
okt/07
jan/08
apr/08
jul/08
okt/08
jan/09
apr/09
jul/09
okt/09
jan/10
apr/10
jul/10
okt/10
jan/11
apr/11
jul/11
okt/11
jan/12
apr/12
jul/12
okt/12
jan/13
apr/13
jul/13
okt/13
jan/14
apr/14
jul/14
okt/14
jan/15
MillionkWh
Net Electric Generation from Coal Net Electric Generation from Natural Gas
15. 15
Clean Power Plan Implementation
Final Rule Due
Plans 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. 16
Clean Power Plan Building Blocks
1647
1005
75
178
45 216
130
0
200
400
600
800
1000
1200
1400
1600
1800
2012 Fossil
Rate
Heat Rate Redispatch to Preserve
Nuclear
Expand RE Expand EE 2030 Standard
EmissionRate(LbCO2perMWh)
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. 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.”
Fear
Price fixed
Market average
Panic
FIX
FIX
FIX
FIX
Wait in a
rising market
Fix too soon
in a falling
market
Fail to fix (enough) at
opportunity moments
18. 18
… and how to avoid them
Don’t buy as
it falls tactics
Opportunity
hunting
strategy
Price fixed
Market average
Stop loss
strategy FIX
FIX
FIX
FIX
FIX
FIX
FIX
20. 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. 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. 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. 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. 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. 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
30. 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. 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
12/21/12
01/21/13
02/21/13
03/21/13
04/21/13
05/21/13
06/21/13
07/21/13
08/21/13
09/21/13
10/21/13
11/21/13
12/21/13
01/21/14
02/21/14
03/21/14
04/21/14
05/21/14
06/21/14
07/21/14
08/21/14
$/MMBtu
gas 2014
Current portfolio value Current market value
Max 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. 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. 34
INDEPENDENTENERGY PROCUREMENT CONSULTANCY
Gas &
electricity
Focus on procurement
strategy, not on consumption
reduction
We are not a supplier,
trading house, or
brokerage.
CLIENT
SUPPLIER
CONSULTANT
What do we do?