Managing gas plant margins through the financial commodities markets
- Koch Industries, Inc., Wichita, KS (United States)
Gas processors invest capital in gas plants to condition raw natural gas for market. They also attempt to upgrade the value of natural gas stream by removing gas liquids contained in these streams and selling them for a profit. Unfortunately, this is not always possible. Gas processing profit margins swing up and down in the line with the volatility of the natural gas and gas liquids markets. Consequently the return on gas processors invested capital also swings up and down through ``good years`` and ``bad years.`` Until recently, gas processors have had to bear the risk associated with these swings in margins. While an efficient market exists for products like crude oil on the New York Mercantile Exchange, no similar market has been available for gas liquids. The NYMEX propane contract has not developed sufficient liquidity for year round hedging of propane, much less the other gas liquids. Processors in regions without access to the Belvieu market encounter an even more difficult task attempting to use the NYMEX contract to hedge. Today this inability to manage risk is beginning to change. The natural gas markets have led the way since their deregulation with an actively traded over-the-counter forwards market firmly established. An over-the-encounter forward market for gas liquids has also started to emerge. It is through these new and emerging markets that a gas plant`s profitability can be hedged.
- OSTI ID:
- 124642
- Report Number(s):
- CONF-9503132--
- Country of Publication:
- United States
- Language:
- English
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