Developing a natural gas hedging process

摘要

Many utilities are currently trying to develop a hedging program for their natural gas needs. This task consists of determining utility's natural gas needs and risk with respect to market price, with a comparison to the organization's risk tolerance. This task involves developing a stochastic (random) model of the financial and physical behavior of the utilities system and portfolio. This model includes such things as the variability in the price of power and fuel and variation in load. The results risks are compared against the utilities risk tolerance. The utility's risk tolerance determines the appropriate amount of risk to leave in the portfolio and how much must be hedged away. This valuation and risk analysis is often based on the assumption of asset options and market inputs at the time of the study. The valuation of mark-to-market optionality will change based on changes in market conditions or changes in model assumptions. It is worth noting that developing risk-management related programs such as hedging is a continuous process. So when developing a hedging program for the first time, the utility should keep an eye toward creating processes that can be repeated with relative ease.