3 ms·
Gas has storage constraints, and once you start talking about physical delivery, the nice abstraction of buying/ selling futures starts to leak. Perhaps the ga
by dmurray 4y ago
Gas has storage constraints, and once you start talking about physical delivery, the nice abstraction of buying/ selling futures starts to leak.
Perhaps the gas generator company bought some gas for delivery today, and has some more arriving tomorrow. When they locked in those deliveries, forecast electricity prices for today were greater than gas prices.
Unlike futures, the gas in your storage tank isn't perfectly fungible (or even convertible at a cost) with gas next month or the gas in someone else's power station across the country.
- londons_explore 4y agoIn the UK specifically, piped gas and electricity are effectively transported 'free'. Ie. economically it is a single market with a single price. Regulations require all market participants are treated equally, and delivery is done by the government at a fixed price, no matter how far away you are, and if for some reason they cannot deliver (for example capacity/transport constraints), then you will be compensated. Thats why specifically the UK is a good case study for a 'perfect futures market', because many of the real world market distortions don't exist.
- fboerman 4y agothis is no longer true anymore since brexit. Electricity on spot market no longer has the same price in the whole country, it depends on which exchange you trade. this has been forbidden in the EU for a long time. There are more things that broke after brexit, hence the market coupling algorithm is much less efficient these days for the UK.