GNE - Genesis Energy

[Beagle]

Thanks Snoopy that sum's it up very nicely.

[PSE]

Genesis will continue to 'coin it' when wholesale prices are high, by just generating as much power from gas as they can. The method Jantar was explaining is what the likes of Genesis could do when wholesale power prices are low. The different strategies are complementary because they would be used in different circumstances.



Genesis had a recent profit downgrade because wholesale power prices are lower than expected. With wholesale power prices low, then Genesis could use the strategy as described by Jantar. But you can take it from the profit downgrade that this alternative strategy is not as good for Genesis as when wholesale power prices were higher.

Genesis has their own policy on hedging for their share of oil from Kupe. From p64 AR2014

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Light Crude Oil Sales

The group manages price risk with respect to oil sales by entering into oil options which provide a minimum price for future oil sales or oil price swap contracts that apply a fixed price for future oil sales. The groups treasury policy sets minimum and maximum control limits ranging from between 50% and 75% of the first twelve months to between 25% and 50% for the months 13 to 24. The aggregate notional value of the outstanding oil swaps and options at balance date was USD50.3m (FY2013 USD51.4m).

The sensitivity analysis is based on the assumption that the relevant market prices (oil price path) had increased/decreased by 10% with all other variables held constant.

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The above text is accompanied by the following sensitivity table

Oil Swaps and Options	FY2014	FY2013
Post tax Impact on Profit or Loss +10%	$(1.7)m	$(0.8)m
Post tax Impact on Profit or Loss -10%	$1.7m	$0.8m

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At first glance that looks odd because an increase in oil prices means a decrease in profits. But options are a profit smoothing strategy. So it does make sense that if oil prices strengthen, then some of that increased profit is given away.

I guess the answer to your question Roger is take the increase in oil revenue in dollar terms then adjust that using the above hedge sensitivity table.

SNOOPY

Jargon snoopy, Jantar used some acronyms.
We can do jargon also if you get us revved up.
I think Jantar refers to particular situation, not a guarantee that GNE can always profit from low wholesale prices.
There are traders on all sides working the angles right.

[Snoopy]

Jargon snoopy, Jantar used some acronyms.
We can do jargon also if you get us revved up.

Quite right PSE. It was the acronyms (mostly) that I replaced in rewritten version of Jantars post. Mind you, to those not in the industry both acronyms and jargon can be equally baffling!

I think Jantar refers to particular situation, not a guarantee that GNE can always profit from low wholesale prices.
There are traders on all sides working the angles right.

Jantar´s example dispelled the myth that low wholesale pòwer prices are always bad for Genesis. That is something that investors in Genesis should take note of. The problem is, for every ´gaming strategy´there is always a counter strategy. I wonder what would have happened in Jantars example if the likes of Meridian had not reduced their power prices? Sure Meridian may have lost income by spilling water. But they might also have hung their competitor Genesis out to dry at the same time? IOW caue just enough pain for Genesis to ensure they didn´t start generating gas fired power at a loss to ´game the system´again?

SNOOPY

[Jantar]

Jantar´s example dispelled the myth that low wholesale pòwer prices are always bad for Genesis. That is something that investors in Genesis should take note of. The problem is, for every ´gaming strategy´there is always a counter strategy. I wonder what would have happened in Jantars example if the likes of Meridian had not reduced their power prices? Sure Meridian may have lost income by spilling water. But they might also have hung their competitor Genesis out to dry at the same time? IOW caue just enough pain for Genesis to ensure they didn´t start generating gas fired power at a loss to ´game the system´again?

SNOOPY

Correct. For every strategy there is a counter. That is why the first, and default, offer is one that protects a company's position irrespective of where wholesale prices may end up. Changes in offer strategy from that default position should enhance earnings without placing any extra risk to that base position.

In my example, if another player positioned themselves to hold prices up, then Genesis would have been dispatched to their origional offer position and been very happy.

[skid]

The momentum seems to be going in the wrong direction for this share--I could be wrong but Ive decided to protect my diminishing profits and bow out for now--It should have been earlier but a combination of waiting for the divi and then an off market transfer delayed things.
This strategy has worked better for me than my earlier habits so decided to stick to it.
Also had an issue with them as our provider which seemed a bit of an omen.--Best of luck to all

[tony64peter]

Following that website MAC provided," WITS", Haywards 30min intervals went from $21.96 to $224.98 in 6 hours. Would this be in error?????

http://www.electricityinfo.co.nz/com...in_prices.main

[thestg]

Following that website MAC provided," WITS", Haywards 30min intervals went from $21.96 to $224.98 in 6 hours. Would this be in error?????

No this is not an error, Sometimes there may not be enough power offered in to supply the power required to the national grid. This may be due to low lake levels, Generator maintenance or sudden outage (loss due to breakdown or fault). The spot price will go up (sometimes into the thousands of dollars in extreme circumstances) this will trigger the next level of generation to come on line. These peaks are usually short term. Another reason the $244 1/2 hr offer is there could be a high load time (5pm - 7pm) and generating stations making the most of the peak by offering in their power at a higher price for that period.

[Jantar]

Note that the price at Benmore has remained low. That is because one of the Cook Strait cables is out of service today for maintenance, and the remaining cable cannot carry all the South Island power. This results in a price separation between the Islands, effectively telling the market that more North Island generation is needed and less South Island generation. Unfortunately, the downfall of the half hourly nodal price system we use in NZ does not recognise the fact that generation plant cannot be started and stopped that quickly.

[Traderx]

Note that the price at Benmore has remained low. That is because one of the Cook Strait cables is out of service today for maintenance, and the remaining cable cannot carry all the South Island power. This results in a price separation between the Islands, effectively telling the market that more North Island generation is needed and less South Island generation. Unfortunately, the downfall of the half hourly nodal price system we use in NZ does not recognise the fact that generation plant cannot be started and stopped that quickly.

Not correct, the half hour market offer fully include generation plant ramp rates, so the price you see is the lowest possible clearing price that solves for all factors including offers, transmission, reserves, and plant ramp rates. As an aside much of NZs thermal plant, including Stratford peaker, McKee, Huntly 6 and whirinaki do have reasonably quick ramp rates. Hydro of course is near instant in most cases.

[Jantar]

Not correct, the half hour market offer fully include generation plant ramp rates, so the price you see is the lowest possible clearing price that solves for all factors including offers, transmission, reserves, and plant ramp rates. As an aside much of NZs thermal plant, including Stratford peaker, McKee, Huntly 6 and whirinaki do have reasonably quick ramp rates. Hydro of course is near instant in most cases.

Huh? What part of my post is not correct?
HVDC Pole 2 is out of service today from 07:00 (when I finished my shift) to 16:00. All North Island fast start plant except Whirinaki was already running prior to the outage. Otahuhu and Stratford CCGTs were not running, not offered, and would take days to get going.