How Gas Trading works

by laxmolnar

No BS or Filler, just knowledge as too many are giving out bad knowledge on the gas industry from my 25 year old perspective. Read this through for my thoughts or just review the bullet points as they’re useful.

Gas traders have physical Gas pricing of off a daily publisher of prices inside storage tanks which are often a 1 year or beyond lease. You can have monthly average price or Spot price which is the daily fixed price people will pay.

Commodity traders should NOT make a deal without a firm margin as they are subject to variable costs such as Demurrage/ Additive&Inhibitor /etc as well as have to buy hedges.

  • Demurrage = Basically ship has nowhere to unload cargo or waiting in line to unload. As it sits idle the owner of the commodity (trader) pays stupid amounts of money. Or or they get paid to become floating storage which is self explanatory.
  • Additive/Inhibitor = Extra crucial now as in a short trip/not sitting the chemicals rarely denatured, but now they sit as the world gets warmer so I expect many cargoes go bad. My trader had a cargo go bad and ended up blending it with other gas for 6 months (is that illegal?) which I have to imagine is normal. More refined petrochemicals like butadiene need these more.
  • Hedge = RBOB & RVR/RVG which RBOB is gas futures idk its easy, but the RVR/RVG is used to hedge the spread between NY Harbor and US Gulf prices as there is arbitrage albeit not useful as its too known. This does have the potential to inverse which is very interesting.

BS Formula for Perspective :

Profit = Sale price – Purchase price – Additive – Demurrage – Broker Fees – operational costs – tank fees – taxes – habor maintenance fee – etc

So like you see there are alot of costs and many absolute retards are saying, “THE CONTANGO THOU”, which really was my inspiration here. Contango falls to fucking shit when you factor in additional costs.

CONTANGO NO EQUAL : Jan lower Purchase Price & Mar higher Sale Price. Don’t think in a goddam vacum, but understand the definition is a definition and doesn’t define the full picture. So basically the way you should see it is trader’s/firms face backwardation in that their value is going to tank based on external costs.

Yo also often you ROLL the position you’re pricing too out to legally cook your books from what I’ve seen. I expect most traders have their positions rolled out May to July and if this is the case then you’ll see more of a financial impact second quarter based on my spotty accounting knowledge.

TLDR: Read the Contango section and start blasting the morons who are obsessing over it and ignoring the million other factors. Otherwise gas fees are expensive AF.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.