Natural Gas Valuations Service

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Natural Gas Valuations Service
Daily Assessments of Natural Gas Futures
Prices for Real-Time Price Risk Management
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Discussion Topics
Valuations Concept Samples, Outputs, Track
Record, Updated Fitted Values Proposal
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Fair Market Values
Changes in supply and demand conditions and
expectations create price volatility, which can
cause prices to deviate from their fair market
values. However, market forces ultimately bring
prices into equilibrium with supply and demand.
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Valuations Concept

• These conditions provide an opportunity to risk
  managers who can identify and act upon such
  developments.
• However, a reliable and accurate price model is
  needed to properly assess values in real time to
  act upon the data before the market does.

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Valuations Defined

• Whether a contract is fairly valued, over-valued
  or undervalued depends on the relationship
  between the actual price of a futures contract
  and its expected price based on expected market
  fundamentals.
• The probability of over- or undervaluation takes
  into account the frequency distribution of
  variables that could occur (e.g., weather
  variances).

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Valuations Concept
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Examples

• February 1995 contract.
• February 1996 contract.

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February 1995 Natural Gas Futures Contract
2.50
2.00
1.50
1.00
25 July
22 Aug
20 Sep
18 Oct
15 Nov
15 Dec
16 Jan
THE BOSLEGO CORPORATION
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February 1996 Natural Gas Futures Contract
3.00
2.50
2.00
1.50
12 July
9 Aug
7Sep
5 Oct
2 Nov
4 Dec
3 Jan
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Sample Outputs
The next 7 slides are outputs of Boslegos Daily
Natural Gas Valuations Service.
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Predicted Price Path
Confidence Interval
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Futures Contract Month
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Futures Contract Month
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Futures Contract Month
Futures Contract Month
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Futures Contract Month
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Sample Outputs
The following 6 slides are examples of Boslegos
Weekly Natural Gas Supply and Demand Forecast.
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Forecasting Storage
One of the major determinants of Natural Gas
Prices is the level of working gas in storage.
The next slide indicates our accuracy in
forecasting working gas in storage.
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Working Gas In Storage
4
3
BCF
2
1
0
Jan 94
Jul 94
Jan 95
Jul 95
Jan 96
Jul 96
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Measuring Performance
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Buyers Hypothetical Positioning Key
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Sellers Hypothetical Positioning Key
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Dynamic Market Models
Based on economic, financial, and statistical
principles and data, enabling us to
systematically and continuously quantify supply,
demand, and price relationships.
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Fitted Values
The model has been updated to explain the key
variables and data for the past five years.