Facebook LinkedIn Instagram Twitter
Shop
Search
Begin New Search
Proceed to Checkout

Search Results for All:
(Showing results 1 to 3 of 3)



Estimating the Cost of Switching Rights on Natural Gas Pipelines

Frank C. Graves, James A. Read, Jr., and Paul R Carpenter

Year: 1989
Volume: Volume 10
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol10-No4-5
View Abstract

Abstract:
This paper is about the pricing of contingent services. The immediate problem is this: What is the cost of the right to choose among pipeline and spot market purchases of natural gas? Changes in the regulation of natural gas pipelines created these rights for customers without providing a mechanism for compensating pipelines. Recently the Federal Energy Regulatory Commission recognized this oversight and called for the rights and obligations of pipelines and customers to be stated explicitly in pipeline service agreements. In the future, service agreements thatprovide switchingrights will be sold at a premium to those that do not. This paper shows how techniques of option pricing can be used to estimate the cost of switching rights. The cost depends on the spot and forward prices of gas, the volatility of gas prices, the rate of interest, and any fees or other restrictions on switching. The option pricing framework should prove useful for pricing contingent services in other sectors of the energy industry as well.



Petroleum Property Valuation: A Binomial Lattice Implementation of Option Pricing Theory

Eric Pickles and James L. Smith

Year: 1993
Volume: Volume 14
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No2-1
View Abstract

Abstract:
We take a simple tutorial approach to explain how option valuation can be applied in practice to the petroleum industry. We discuss a simple spreadsheet formulation, demonstrate how required input data can be extracted from market information, and give several exploration and development examples. Under the market and fiscal conditions described we derive the value of discovered, undeveloped reserves projected to result from offshore licensing in the United Kingdom, and we show how to determine the maximum amount that should be committed to an exploration work program to find those reserves. Lease-bidding and farm-out applications are briefly described. We recommend option valuation as an alternative to discounted cash flow analysis in situations where cash flows are uncertain and management has operating flexibility to adjust investment during the life of the project, and point to further work needed to fully value nested or embedded options.



Specifying An Efficient Renewable Energy Feed-in Tariff

Niall Farrell, Mel T. Devine, William T. Lee, James P. Gleeson, and Sean Lyons

Year: 2017
Volume: Volume 38
Number: Number 2
DOI: 10.5547/01956574.38.2.nfar
View Abstract

Abstract:
Commonly-employed Feed-in Tariff (FiT) structures result in either investors or policymakers incurring all market price risk. This paper derives efficient pricing formulae for FiT designs that divide market price risk amongst investors and policymakers. With increasing deployment and renewable energy policy costs, a means to precisely apportion this risk becomes of greater importance. Option pricing theory is used to calculate efficient FiT prices and expected policy cost when investors are exposed to elements of market price risk. Expected remuneration and policy cost is equal for all FiTs while policymaker and investor exposure to uncertain market prices differs. Partial derivatives characterise sensitivity to unexpected deviations in market conditions. This sensitivity differs by FiT type. The magnitudes of these effects are quantified using numerical examples for a stylised Irish case study. Based on these relationships, we discuss the conditions under which each policy choice may be preferred.





Begin New Search
Proceed to Checkout

 





function toggleAbstract(id) { alert(id); }