International Arbitrage Hedging IN LPG Markets

This paper aims to provide an overview of different hedging strategies for Company x.

Company x approached Redsleeve SA in order to get familiar with how to hedge different scenarios of international arbitrage position and to minimize financial exposure when trading lpg cargoes with different underlying pricing exposure. It is understood that all guidance and recommendations given from company Redsleeve SA to Company x are to be considered as recommendations. Redsleeve SA does not take any responsibility or liability for any action, financially or legally from the actions executed by Company x that are based on such recommendations. Redsleeve SA further relates to its GTCs for further clarification.  All activity between Redsleeve SA and Company x, including conversations, verbally or written, remain strictly PnC and shall under no circumstances be disclosed to other market participants.

Objective:

Company x has mainly been active in markets with similar or identical pricing exposure, i.e., buying and selling Sonatrach SP related or buying and selling Saudi CP related. In order to expand their trading activities, Company x aims to increase their expertise with respect to how to handle exposure to international market pricing, such as the US Mtbvieu pricing, Asian CP/FEI pricing, exposure and Naphtha related shorts.

The objective is hence to present Company x with a number of selective case studies that demonstrate and visualize the necessary actions in order to effectively manage such pricings and the underlying exposure.

The case studies will demonstrate how the underlying calculations have to be executed in order to evaluate and calculate potential deal profitability when moving an LPG cargo from its origin to a destination with a different pricing methodology.

Furthermore, different price movers will be discussed in order to give an understanding on how they can affect the performance of a hedge, they generally present elements that cannot be hedged or only in an environment of limited liquidity... (for the full report and pricing please contact admin@oilynx.com)

Contents:

1.2 Case Studies: US origin and US pricing methodology

1.3 Case Studies: CP Origin and CP pricing Methodology

2.1 Buying a propane cargo from the US and selling it into a CP related short

2.2 LPG cargo being traded from the US into India

2.3 Explaining the Methodology of a SWAP

2.4 How to set-up for hedging

2.5 How to hedge a cargo – understanding exposure and price risk management

2.6 Hedging the Eastern ARB - Economics for Mt Belvieu - Chiba Propane ARB

2.7 Buying a Propane/Butane cargo from the US and selling into a European Naphtha related short

2.8 Buying a butane or part butane cargo from the US and selling into a European Naphtha related short

2.9 Buying a propane cargo from the US and selling in to the European MOC window

3.0 Buying European origin (SP) and selling CP, Argus Cif ARA large or Naphtha related

3.1 SP vs CP

3.2 SP vs Argus CiF ARA large

3.3 Buying CP related cargo and selling into a FEI related short

4.0 Additional Information and contacts to get set up for hedging