March 1st, 2014 by ALBERTO MOYANO
Last October, a client asked us to put together a natural gas hedging strategy for this year. Using the Alerts Module in ChancesR®, and the client’s natural gas budget, we set up alerts for the target rates and monthly gas volumes. On 01/19/14 at around noon, we started receiving email alerts that the natural gas price at NYMEX had dropped below our target price rates for the months of February and March of 2014. In the next few minutes, using the Hedging Master Module in ChancesR®, we locked 116,540 dth @ $4.02/dth for February, and 222,160 dth @$4.065 for March.
Based on NYMEX natural gas settlement price for February 2014 of $5.557/dth, March of $4.855/dth, and the locked values back in January, we saved our client $ 354,628, in just two months!
The picture below shows NYMEX futures prices of natural gas for Jan-2014 and Jan-2016 as of 12/20/13. As we can see, the volatility when getting closer to the settlement month (Jan-2014) is much higher than farther away (Jan-2016). In order to hedge under this market conditions, where prices suddenly change, the buyer must be quick and accurate (monthly volumes).
ChancesR® – Hedging Master is the result of years of hands-on experience purchasing natural gas under these market conditions. It was designed for users of natural gas, and not speculators or traders. ChancesR® – Hedging Master allows the buyer to perform multiple hedgings in a short period. Because the system updates the unhedged volumes after each hedge, the buyer will never purchase more gas that is needed.