How does natural gas supplying actually work?

Since the uncontrolled natural gas price is rising, we read a lot about how the financial part of this particular commodity works. But how natural gas is imported into a national market? Which processes must be implemented in order to secure the natural gas demand?

One of the main issues that a shipper must consider is the risk of price and demand volatility. Both of them have been much more than ever uncertain in the last weeks.

From the physical point of view, methane can be bought as liquefied natural gas [LNG] or natural gas [NG]. Do you know where these two kinds of commodities came from? Anyway, LNG and NG follow similar supply chains, where each step is regulated by contracts, volumes, and prices: supply, transport, storage, trading, and B2B selling. The supply chain has leading uncertainties due to commodities price risks and uncertainty of withdrawal volumes.

The commodities price risk is analyzed using mathematical models to price the contracts involved in the supply chain. Further, financial derivatives are priced and traded, hedging the financial risks.

Uncertainty of withdrawal volumes is driven by the needing for the two main customer segments: large customers, and NG wholesalers. So, for this reason, forecasting algorithms are used to guess the consumption of each customer segment. Weather forecasts are taken under consideration as well.

Controlling the risks of natural gas delivery is a quite complex activity set. On top of this, the interaction with other offices must be tackled: the trading desk, sales department, and assets managers.

So the next time we’ll hear about how easy could be to keep the natural gas price under control, I hope everyone considers the complexity of handling the financial issues of energy commodities.