A few weeks ago we ran a live webinar with our partner OTC Global Holdings (OTCGH) to provide a closer look at how ZEMA analytics can be usefully applied to the natural gas and power market data produced by its subsidiary EOX Holdings (EOX). EOX is one of several futures brokers in OTCGH’s portfolio of independent inter-dealer brokers in over-the-counter energy commodities. EOX’s reports are used by subscribers to support trade and investment decisions in energy markets. During the webinar, we highlighted ZEMA’s ability to perform both simple and complex analyses using EOX’s natural gas and power forward curve data from various locations across North America.

Futures Contract Analysis

Simply put, traders and risk managers are interested in seeing how the price of a contract or commodity has traded over a specific period of time in order to predict its movements in the future. In our first example of the webinar, we looked at EOX’s Natural Gas Curves report to see how Algonquin natural gas contracts for the next three winters (2015-2017) have traded over the previous six months. As the graph below demonstrates, contracts for winter 2015 traded at higher prices than those for later dates.

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Figure 1: Algonquin – Winter 2015-2017

Create Curves with ZEMA and Observe Seasonality

ZEMA also offers organizations the ability to automatically create and visualize forward curves using ZEMA Market Analyzer. The graph below displays the output from applying ZEMA’s forward curve analysis to EOX’s natural gas futures contracts for Algonquin and several other locations. What is apparent is the seasonality of natural gas trading. Valuable information like this can be easily integrated with third-party trade and risk, financial, or BI systems to create an overall perspective of a particular commodity, or any other commodity.

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Figure 2: NG Forward Curves – Northeast

Spark Spread Analysis to Assess the Profitability of Natural Gas Generators

In order for an organization to determine its bottom line, it must constantly track the difference between the market price of energy and the cost to produce it. This analysis is known as the spark spread. To demonstrate this in ZEMA, we use the spark spread formula from ZEMA’s formula library. Calculating the spark spread requires a power price and natural gas price for a particular location; In order to look at this analysis for Houston, we looked at EOX’s natural gas forward curves for Houston ship channel, the Henry Hub benchmark price for natural gas and the power price for ERCOT Houston. The results below show the predicted monthly margins for the next five years.

 

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Figure 3: Spark Spread – Houston

Day-over-Day Change in Power Forward Curves

Another important calculation that can be determined and visualized in ZEMA Market Analyzer is the day-over-day change in forward curves. During the webinar, we selected one of the new southwest electric trading points that EOX is publishing prices for and created daily forward curves for one week. By applying simple subtraction, users can determine the daily price difference of their contracts.

 

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Figure 4: Mead – Day-over-Day Change

Another common task risk managers and traders must complete is determining the calendar spread of a commodity. For this final analytic of the webinar, we selected EOX’s 2013 and 2014 July and August power contracts for ERCOT North and ERCOT West; we then calculated the spread between the August and July contracts in 2013 and 2014 for both regions. By subtracting the West spread from the North spread in 2013, and doing the same in 2014, we noted that the July/August price difference between the North and West is much greater in 2014 than it was in 2013.

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Figure 5: Calendar Spread

To see further analysis of EOX data in ZEMA, or data from another vendor, book a demo today. A recording of this webinar can be accessed from ZE’s Media Library.