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C. Statistics |
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Big
Three Energy Commodities
Overview
This page introduced
to the ‘Big Three’ energy commodities.
Outline
1) What are the ‘Big Three’ Energy Commodities
2) Why are they the ‘Big Three’?
4) Comparison/considerations of the Big Three
5) Considerations for CTRM system design
1) What are the ‘Big
Three’ Energy Commodities
They are:
1.1) Crude Oil/Refined
products
1.2) Natural
Gas
1.3) Power
(a.k.a., Electricity).
Notes
1.4.1) We are considering ‘Crude Oil’ and ‘Refined Products’ as
being one category here, instead of two, which is an acceptable alternative.
1.4.2) We’ll shorten ‘Crude Oil’ to just ‘Crude’ or ‘Oil’ in our
blog.
1.4.3) Refined
products includes, for example, Unleaded Gas, HSFO (High Sulfur Fuel Oil),
Diesel, Naphtha and Kerosene.
2) Why are they the ‘Big
Three’?
These
commodities are the biggest in terms of dollar equivalent amount. Both for energy and for the commodities
markets in general.
As a
comparison, think about how much money you spend on energy for your home, e.g.,
Natural Gas or Power for heat and/or cooking and/or powering lights and
appliances. Compared
that to the amount of money for a softs commodity like coffee. Unless you drink a lot of
coffee :)
3.1) Coal
3.2) LNG (Liquefied
Natural Gas)
Notes
3.3) We are considering LNG to be different here versus regular
Natural Gas. Why? This is categorized from the viewpoint of
CTRM system design. A system that is
designed for regular Natural Gas, which is transported in pipelines, may not
work with LNG, which is transported in ships.
4) Comparison/considerations
of the Big Three
These three
commodities have different design modelling requirements for CTRM systems.
These are the
criteria that make a differences:
4.1) Storage:
Natural Gas can be stored. So a CTRM system that supports these
commodities must allow for storage, e.g., real storage like storage tanks, or
‘virtual storage’ from pipelines called ‘Park and Loan’.
Crude/Refined Products.
Same
thing as Natural Gas.
Power cannot be stored, at least not in the traditional
way. i.e., we aren’t counting batteries
or forms of indirect storage.
4.2) ‘Fungible’.
Fungible means
that the item is not unique, such that any similar item can be substituted for
it. A common example of this would be
cash, e.g., a $100 bill is the same as any other $100 bill. So if you put one $100 cash in the bank, and
take out a different $100 bill (or 5 $20s), you are happy.
Natural Gas:
Fungible. What you put into one
end of a pipeline is not the same molecules as what you might take out at
another location on a pipeline. In
particular, all natural gas within a pipeline system is expected to be the same
grade.
Power: Fungible. Same thing as Natural Gas.
Crude Oil/Refined Products. Generally not fungible.
Meaning, if you put a particular grade of refined product, e.g., 87
Octane unleaded gas with a certain percent sulfur into a ‘cycle pipeline’, you
expect you’ll get the same molecules out at the destination location.
There are some
pipelines where Crude is fungible, i.e., where you put in a certain grade of
crude into one location on a pipeline, and take out different molecules of
crude at another location, i.e., same grade, but different ‘molecules’.
4.3) Grades/Qualities
Natural Gas: All the same grade/quality
Power: All the same grade/quality
Crude Oil/Refined Products. Each batch of Crude Oil or refined products can have various
attributes that impact the grade or quality.
These can be measured. Some are
quantitative like the amount of sulfur or the octane or the viscosity. Some are qualitative like the color. Each batch may need to be measured for these
various attributes and the specifics can alter the price, to raise
or lower the payment amount based on whatever counterparties agreed was
appropriate.
4.4) Time
Duration
Power is typically hourly.
You’ll likely need to schedule (i.e., physical logistics) down to the
hourly level. Meaning, for example, the
volume for 3pm to 4pm may be different than the volume from 4pm to 5pm. And settlement prices may need to be at the
hourly level, i.e., 24 different prices per day. Also may need to take into account long and
short days (25 hour and 23 hour) for daylight savings. In fact, Power might be scheduled to a
sub-hourly level, e.g., in increments of 5 minutes.
Natural Gas and Crude Oil Refined Products
tend to be at the daily
level, at least in the US. In Europe,
Natural Gas might be scheduled down to the hourly level.
5) Considerations for CTRM system design
5.1) The above differences should be considered right from the
start for CTRM system design.
If you start
by designing, for example, a system for US Natural Gas that assumes you can
schedule only down to the daily level, you would likely need to start from
scratch to get a module to support hourly level power.
An ideal
system design would have core elements that are common across all commodities,
so best to try to understand the different requirements of the Big Three to
chart out the design plans to optimize things.
Introduction to
CTRM
Click on this
link for a great introduction to CTRM software: Introduction to CTRM Software