International Business House

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VIRTUAL COURSE: LNG Trading and Risk Management

24, 25 March, 2021

DAY 1: 24 March
MODULE 1: LNG Trading and Physical Risks

Part 1: 08:00 -10:10 (with 10 min break)

Session 1: Trading LNG - Global Price Arbitrage 

The course starts out with the requirements needed for trading LNG and the types of trade that can be undertaken to optimise LNG delivery.  The delegates will also get an overview of the importance of the LNG charter market. The session continues with the different pricing mechanisms of pricing in the global LNG Marketsto understand how these mechanisms create price arbitrage.  The section will also look at the basics of netback calculations to compare and value different markets.

Session 2: Trading Optimisation

This part of the course will look in detail at the optimisation of LNG Deliveries using the following specific situations to look at the arbitrage potential between markets, to include:
FOB Purchasing decisions
DAT (DES) deliveries to European natural gas markets
JKM trades
Oil Indexed
US FOB Export

The course will use examples to illustrate the different dynamics of the arbitrage and will also seek to remind delegates of the conditions required for the trades and to highlight risks.

15 min Break

Part 2: 10:25 -12:35 (with 10 min break)

Session 3: Physical Risks in LNG Trade:

The course starts out with a review of the physical risks around trading LNG from the perspective of the cargo and the redelivery of regasified LNG. The section will discuss issues around loading, unloading and forward delivery into different types of market.  The purpose of this is to identify the contractual remedies to manage these types of risk.

Session 4: Price Risks in LNG Trading and how to manage them:

While delegates will have understood the need to mitigate pricing risks within a contractual situation, this section will look at the different type of price exposures in the global LNG market.  Delegates will have a full understanding of the different types of pricing model within the LNG marketplace and the risks associated with these different pricing mechanisms.  The is section will also look at the impact of basis risks within markets. The first day will be rounded up with a look at the concept of hedging and what we are trying to achieve by this.

DAY 2: 25 March
MODULE 2: LNG Hedging: Physical and Financial

Part 1: 08:00 -10:10 (with 10 min break)

Session 1: Physical, Futures and Options Markets

The second day starts with a look into what we mean by hedging.  The module will look at what the motivations are for hedging and the most suitable form of hedging for different types of risks.  With the knowledge of the different types of hedging, the course will examine the different markets for undertaking risk management.  The section will explore the differences between physical and financial markets.  The delegates will be able to identify which markets will be used for different LNG markets across the globe.

Session 2: Physical Hedging

The course will then move onto discussions of how physical hedges work within the LNG industry and the associated risks.  This section will use examples from the global market to demonstrate how the physical hedging program would work and the best scenarios to use this as a tool.  This section will also look at the concepts of LNG storage and the risks associated with these.

15 min Break

Part 2: 10:25 -12:35 (with 10 min break)

Session 3: Fundamentals of Futures and Options:

This section will look at the underlying fundamentals of Futures, namely bid and offer prices and valuations of the different futures markets including proxy hedging of oil indexed LNG prices. This section will also look at the structure and value of Options.  Delegates will understand the differences between call options and put options, strike prices and the differences between European, American and Asian style options.  This section will give an overview of the Black-Scholes model and an understanding of its input variables. 

Session 4: Hedging using Futures and Options:

The course will then move onto examples of using different markets for hedging markets.  Delegates will understand how to hedge the European, US and JKM and Gulf Coast LNG prices using examples, including spread hedging between markets.  These will be done in the context of LNG cargoes, looking at the different calculations required. This final section will also demonstrate the use of basic (Vanilla) options and more complex options, known as Exotic options, within the LNG Business. The delegates will be taken through examples to demonstrate how the options may be used in the different markets from simple price caps or floors to the use of collars. 




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