GRP 08 Market Prices (pdf 215 KB)
Incentives to participate To participate in the Gas Release Programme 2008, it is only natural to take a view to the expectations of how the market development.
Regularly up-dated information on recent developments in market prices will be published here:
Market Information
Principles to valuation of products
Previous DONG Energy GRP participants have asked DONG Energy to provide an explanation on how to value the products offered in the gas release programme.
While DONG Energy, or its affiliates, explicitly do not resume any responsibility for the bids submitted by participants in the GRP auctions, the following may provide some general guidelines on valuation though DONG Energy strongly recommend bidders to seek their own independent and professional advice.
The offered products are not standard traded products at the NW European short term gas markets. When valuing the products potential bidders must therefore to a certain degree rely on their own subjective assessments and assumptions as information and prices are not readily provided by the market places.
Each GRP product can be thought of as a swap of gas between the delivery point GTF (DK) and the respective redelivery point. As such it is a combination of two contracts: a purchase contract with flexibility at GTF and a sales contract with identical flexibility at the redelivery point. Each of the two contracts can be valued against their respective markets and the difference between their respective values will constitute the resulting value of the GRP product.
Valuing a contract against the market at its delivery point entails estimating the difference between – on one hand – what the expected market sales value of the contracted gas is when sold at the market and – on the other hand – what the expected cost is of purchasing gas under the contract given the contract price. The value of the contract is positive when this difference is positive.
The potential bidder must therefore form its own expectation of future market prices as well as take into account the flexibility of the contract. The flexibility brings value to the contract as the buyer can turn the contractual off-take up or down in response to future market developments, e.g., fluctuating future weather driven market demand, fluctuating future spot market prices, etc. The higher the expected future market uncertainty the higher is the value of the contractual flexibility.
The difference between the thus estimated values of the respective contracts at the delivery and redelivery points (which should include the value of flexibility as well as the value of the difference between the respective market prices and respective contractual purchase costs) is the value of a GRP product.