Concessionary system – The E&P company assumes all the costs and risks.

Host country is not

responsible

Profit Oil – Gross revenue after costs such as operating cost, royalties and taxes are paid

Hydroskimming refinery – Simple refinery. Processes light sweet crude

Crack spread X:Y:Z – X crude, Y gasoline, Z distillates

Xcrude – (Ygasoline + Zdistillates) = X*crack spread
X=Y+Z
1bbl = 42gal

A price differential formula is used to price a specific crude oil stream against global benchmark

Coal quantity variance adjustment clause – specifies a deadband (overage/underage) of +/-2%. Any
volume outside this band is settled at market price

A Feed-in-tariff offers a fixed price per unit of renewable energy produced and delivered to the grid

Demand response is a ‘bid’ to the IESO through the capacity market

Working gas – that can be withdrawn from the facility

Cushion Gas – that needs to be kept in reserve to maintain the pressure

Take-or-Pay: forces the consumer to either take the delivery of the gas or pay for it even if it is not
delivered.

The implied market heat rate is calculated by dividing the cost of the natural gas into the market clearing
price for electricity

Financial Transmission Rights (FTR) are financial instruments that pay the difference between the price
at two locations.

Capacity payments are meant to ensure that there is adequate investment in generation capacity so that
the spikes in demand can be met

Break even BBLs = (LOE * WI) / (Poil * NRI * (1-tax))

Brent Crude API = 37.6 Sulfur = 0.4%

Tight Oil – crudes contained within reservoirs with low porosity that might require fracking

Posting plus price (P plus) – In addition to the spot price, the p-plus price includes a premium meant to
cover the transportation costs associated with the gathering of oil for delivery

In Production Sharing Agreement (PSA), the initial exploration and development costs are solely borne
by the IOC. Profit oil is shared between the parties.
Light to Heavy Oil – LPG<Gasoline<Kerosene<Diesel<Asphalt

CFD (Contract for Difference) is defined as the differential between the dated Brent price and the
following month forward price

Contract of Affreightment (COA) – Includes quantity t be shipped and location but does not specify the
tanker to be used

Capacity factor of a generating unit = Actual output / potential output

Month Codes
Code Month

F January
G February
H March
J April
K May
M June
N July
Q August
U September
V October
X November
Z December

Energy contract tickers –

CL – Crude Oil
HO – Heating Oil
HU – Unleaded Gasoline
NG – Natural Gas
RB – RBOB gasoline

In Cogeneration, both electricity and heat is produced

Reservoir characteristics – Porosity, permeability

Natural Gas composition –

- Methane (70-98%)
- Ethane (1-10%)
- Propane (0-5%)
 - Butane (0-2%)
Gas-oil ratio: no of cubic feet of gas the well produces per barrel of oil

Refinery margin = total revenue – crude cost – operating cost

Types of refineries –

 Simple – crude distillation, cat reforming, hydrotreating distillates.

 Complex – Simple + vaccum flasher, cat cracker, alky plant, gas processing
 Very complex – Complex + coker (to eliminate residual fuel)

NG trading terminologies –

 Index price – price at Henry Hub

 Basis price – spread between index price and price at a specific location
 All-in price – actual price at a location

1 bbl = 5800 MBtu

Futures can only be used to reduce the impact of price volatility with no impact on supply risk or basis
risk.

LNG price East Asia – (gas/oil energy ratio) * JCC + transport costs

Coal types (Highest to lowest) –

 Anthracite (hard coal) – high carbon, low volatile matter, moisture<15%, heat content: 22-
28mmbtu/ton
 Bituminous coal – used to make coke. Moisture<20%. Heat content: 21-30mmbtu/ton
 Subbituminous coal – power generation. Moisture: 20-30%. Heat: 17-24mmbtu/ton
 Lignite (brown coal): exclusively for power generation. Moisture ~ 45%. Heat: 9-17mmbtu/ton

Coal sampling concepts:

 Accuracy
 Precision
 Bias

Coal washing – process to remove mineral from the coal

US power grids –
 Texas
 Western
 Interconnect

A deregulated market is where an RTO/ISO coordinates generation and transmission. – daily power
auction, market clearing price
Electricity trading market:

Spot Market
 Day ahead auction: sets price for the following day in one hour increments. Only power plants
participate here
 Real time auction: 5 min increments. Run continuously on actual delivery day

Forward market
 Commonly broker up into day and night power by month
 Commonly described in weekdays-by-hour shorthand (7x24 – power 7 days a week, 24 hours a
day)

Cost of congestion is paid only by affected parties

Locational Marginal Price elements –

 Clearing price
 Congestion charge
 Line loss charge

Node price
Zone price
Hub price

Financial transmission right (FTR) – tradeable contract between two parties that pay the difference in
price between the two nodes (as forward or option)

Heat rate = fuel used (mmbtu) / power produced (mwh)

More the heat rate = less efficiency

Market Implied heat rate (MIHR) = Power price / fuel price (spark spread = 0)

Spark spread = power price – (gas price * heat rate)

Pricing models

 Postage stamp: prices are same at all points

 Zonal: postage stamp pricing within a zone
 Postage stamp with market splitting: zones have same price unless there is a constraint present.
In case of constraint, the exporter zone receives clearing price of importer zone
 Nodal: each node has its own price

FTRs are known as FT – rights when structured as options, FT-responsibilities when structured as
forwards
Electricity cost distribution –

1. Generation: 35-50%
2. Transmission: 5-15%
3. Distribution: 30-50%

Under regulation, customers take the most risk; Under competition, producers take the most risk

Types of commercial nuclear reactors:

1. Boiling water reactor (BWR)

2. Pressurized water reactor (PWR)
3. Gas cooled reactors
4. Pressurized heavy water reactors
5. Light water graphite reactors
6. Fast breeder reactors
7. Pebble bed modular reactor (PBMR) – safest – core meltdown is impossible

Main ancillary services in power market –

1. Reactive supply
2. Operating reserves (7-10% of load)
3. Frequency response

Royalty holidays (along with tax holidays) are incentives countries may offer to IOCs to help maximize
their investments in domestic oil/gas projects

A tolling agreement is a contract to rent a power plant from its owners.

A tolling agreement gives the renter the option to convert one physical commodity (fuel) to another
(electricity)
Profit = Dispatch * Spark spread

Wheeling: The act of physically transporting electricity from one location to another (over power lines
rented from a third party)

Wheeling as financial option-

 Premium – upfront cost of renting
 Underlying asset – price difference between the two regions
 Strike price – transportation cost

LNG Project’s condensate and/or LPG production can provide a separate revenue stream that can have a
positive impact on project’s economics.

Gas supply agreement structure (GSA)-

 - Supplier
- Quantity including daily and annual production rates
- Period of the agreement
- Price of NG supplied to the plant
- NG delivery point
- Amount and allocation of damages in the event of failure
- Provisions of force majeure

LNG Business structure –

3 categories –
1. Separate upstream and downstream ventures
2. Fully integrated ventures
3. Liquefaction tolling agreements

1 mil ton LNG = 47-50 Bcf NG

Additional 8-10% of gas is required for liquefaction

LNG SPA components–

1. Quantity
a. Take-or-pay provisions
b. Buildup period
c. Makeup quantities
d. Roundup/down provisions
e. Excess quantities
f. Force majeure makeup quantities
g. Treatment of expansion quantities
2. Pricing
a. APAC – generally tied to crude prices. Japan – JCC (Japan Crude Cocktail). Dampening
mechanism – S curve.
b. Europe – Base FOB price indexed to a single crude or basket of crudes.
Pn = P0 × (W1 × F1 /F10 + W2 x F2/F20 )
c. North America – LNG prices are set in reference to liquid gas market prices
Gulf of Mexico – Henry Hub prices
East coast – henry hub + premium
West coast – henry hub – discount
3. Gas quality
4. Transportation – Ex ship or CIF (Seller responsibility); FOB (buyer responsibility)
5. Scheduling
6. Invoicing of payments
7. Measurement and sampling
8. Title transfer
9. Force majeure
10. Choice of law
11. Dispute resolution
12. Allocation of liabilities, liquidated damages and termination
LNG Tanker Contracts –

1. Charterparty
2. Bill of Lading

Charterparty –

1. Time charter - the charterer hires the LNG tanker from the shipowner for a specified length of
time.
a. Capital and operating expenses are borne by shipowner including ship maintenance,
crew, insurance etc
b. Voyage costs are borne by charterer (fuel, port charges, boiloff etc)
c. Shell LNG Time 1
2. Bareboat charterparty – shipowner hires out the tanker. Bears no cost
a. Tanker is in absolute control of the chartere and full responsibility is his.
b. There is often a tanker purchase option on the expiration of the bareboat charter
3. Trip time charterparty - This contract runs for a short period of time, generally for one trip. The
money paid to the shipowner is based on a daily hire rate that incorporates voyage costs but
excludes fuel and port costs, which are for the charterer’s account
4. Voyage charterparty – for a particular voyage. The money paid to the shipowner is normally
based on a currency amount per ton of cargo loaded, which incorporates all the voyage costs
5. Contract of Affreightment - a shipper (the charterer) agrees with the shipowner to transport a
specified quantity of LNG on a ship-or-pay basis. The shipowner can nominate any capable and
available tanker from its fleet or charter in a vessel for this purpose, provided that the tanker is
approved by the charterer.

RET – Renewable Energy Technology

Integrated O&G companies, also known as majors, are involved in almost every aspect of the O&G
business: upstream, midstream, and downstream

2 basic methods of reserve estimations for crude oil –

1. Deterministic - based on known geological, engineering, and economic data
2. Probabilistic - used when the known geological, engineering, and economic data generate a
range of estimates and their associated probabilities

O&G Reserves

- Proved
o Developed
 Producing
 Non-producing
 Shut-ins
 Behind the pipe
o Undeveloped
- Unproved
o Probable
 o Possible
Types of interest in O&G reserves –

- Mineral interest
- Royalty interest
- Working interest
- Net revenue interest
- Overriding royalty interest

Electricity markets

1. Forward and Futures market

a. The forward and future markets run from years before up to the day before delivery.
Forwards and futures are contracts to deliver/ consume a certain amount of electricity
at a certain time in the future for a price agreed upon today
2. Day ahead market
a. In the day-ahead market, electricity is traded one day before actual delivery. The day-
ahead market is of major importance as the market zone has to be in balance at the end
of the day-ahead market
3. Intra-day market
a. In the intra-day market, electricity is traded on the delivery day itself. The intra-day
market enables market participants to correct for shifts in their day-ahead nominations
due to better wind forecasts, unexpected power plant outages, etc
4. Balancing market –
a. Frequency containment reserves
b. Frequency restoration reserves
c. Replacement reserves

Three trends of electricity grid edge transformation

1. Electrification
2. Digitalization
3. Decentralization