Document Type

Thesis or dissertation

Date of this Version

2018

Advisor

Andrew Huemmler

Abstract

The launch of liquified natural gas futures in May of 2017 on a major exchange follows a dramatic increase in global demand for the energy source. The profit of firms that produce LNG, known as transformers, is driven by the spread between the price of natural gas and LNG. With the launch of LNG futures, transformers now have the ability to hedge their exposure to this spread, similar to oil refiners hedging the crack spread. This paper proposes three hedging strategies transformers can utilize to limit their exposure to natural gas and LNG price movements. Using second-order lower partial moments (LPM2) as a measure for hedging effectiveness, this paper will show that transformers who do not hedge their exposure to the spread perform better than those who employ any of the proposed strategies, a result driven in part by 2017 market conditions.

Keywords

natural gas, LNG, commodity hedging

Included in

Business Commons

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Date Posted: 23 October 2018

 

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