Every quarter we publish an update of our Natural Gas Storage and Swing Report. It presents price assessments of a few standard storage and swing contracts, which you can benchmark to your own valuations. Above all, the report provides transparency to an otherwise opaque trading market, also revealing the underlying assumptions about market prices, market volatilities and trading strategies. Take advantage of our free service to you!
With our Natural Gas Storage and Swing report, we report about a few selected contracts. But of course we realize that you may have different needs! Our report compares the current quarter to the previous, but would you need data per month? Or do you need historical valuations? Or over a longer horizon? No problem, just contact us for more information.
We have in the past made customized reports for very different types of companies. For example, we provided data that was used in several arbitration cases between energy companies. Also companies used our analysis to facilitate their investment or divestment decisions.
Over the last 3 months of the summer, most trading attention focused again on the prompt. Although the day-ahead prices started and ended this three-month period at almost the same level, we could observe large price swings. The average TTF Day-ahead price over this period was 10.2 €/MWh, but prices peaked at 13 €/MWh and went below 7.50 €/MWh; a level not seen for over 10 years! As a result, the calculated spot volatility increased. As an example, the TTF spot volatility calibrated over Q2-2019 was 70% and this increased to 92% over Q3-2019.
We see the current price volatility as a result of the exceptional situation over the summer. First of all, it started with an unusual low storage demand and a large influx from LNG into Europe. This combined with a nervous CO2 price, dictating a volatile gas demand for power generation and news/rumors about North-Stream 2 and Ukraine transit situation, led to the observed spot price changes. Furthermore, since volatility is calculated based on relative price changes, the low absolute price level tends to lead to higher calculated volatilities. At low price levels, a 1 €/MWh price change has a larger effect on the calculated volatility than the same 1 €/MWh price change at a higher price level.
The forward gas curve did not change substantially during this period. Summer 2020 TTF stayed basically constant at 17 €/MWh. This reflects the view of the market that the current situation is exceptional and that the underlying fundamentals of the gas market remain intact.
Combining all these facts, we increased the KYOS suggested spot volatility only with 8 percent point to 57%. Due to the increase in spot volatility and the fact that all other relevant parameters remained largely unchanged, the value of basically all our storage and swing contracts went up.
To read the complete report with graphs and tables: KYOS Gas Storage and Swing report Nr 24 Oct 2019
All valuations have been performed with KYOS software and models, KyStore and KySwing. KyStore and KySwing support traders, portfolio and risk managers in natural gas markets. Inputs include market parameters, together with our own suggestions, forward curves and other parameters and settings. The model calculates the intrinsic value based on the forward curve and takes tradable products and bid/ask spreads into account. Our software uses Monte Carlo simulations of spot and forward prices to provide the rolling intrinsic and option values. Numerous companies in the energy industry already use our valuation software. You can find more information about our gas optimization software on our solutions page here.
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