• In-depth analysis of the rationale of hedging in the US natural gas market

• Quantitative analysis of the effects of four key hedging strategies

CONTENTS

Preface
Introduction
Hedging instruments
Purposes of hedging natural gas
Volatility reduction
Hedge gain maximization and other extensions of risk management
Speculation versus hedging
Hedgemasters
Portfolios

Four hedging strategies
Pure futures strategies
Always selling 12 months forward
Selectively selling three months forward
Selling forward in backwardized markets

Pure options strategies
Selling options

Options combination strategies
The bear spread
The straddle
The strangle
Collars
Hedging by condition: backwardized and contango markets
Call options in a backwardized market
Hedging in bear markets
In-, out-of-, and near-the-money options
Layer upon layer

Exotic (Asian) options strategies

Consumer risk management
Background and history
Hedging strategies
Example 1. Petrochemical plant hedging gas feedstock costs
Example 2. An LDC hedging against rising prices
Example 3. An electricity utility hedging the spark spread
Weather derivatives to hedge volume at risk
Weather gas demand correlations
Hedging parameters for winter exposures
Pricing a weather deal
The role of weather forecasts
The role of storage in a hedging program
Future prospects

Conclusions
Winners and losers
Energy consumers
The last word: does basis risk render all of this moot?

Notes