Risk Management
The NYMEX propane contracts are an unreliable vehicle for propane risk management because of the lack of liquidity coupled with extreme swings in the differential between the NYMEX and the Conway propane market. However, there are other ways to address the risk management issue:
- Purchasing fixed-forward contracts for propane is very flexible. The quantity contracted can vary from a single load to virtually any number of gallons. The delivery window is also very flexible and not restricted to monthly increments as is common with gasoline and diesel fuel.
- Floating price contracts are available based on the Conway daily or monthly OPIS average.
- Over-the-counter swaps and options are available as vehicles for hedging sales and/or inventory against price increases or declines.
The aforementioned risk management tools can be used independently or in combination to fit the customer's needs. Consultation with a Fauser Energy Resources Representative will identify individual strategies and create a well-designed value management program that will stabilize volatile propane markets. A solid, conservative approach to controlling forward values will enhance long-term profitability.
To further explore propane risk management opportunities, contact us at resources@fauserenergy.com.
