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Introduction Anders Plejdrup Houmøller CEO, Houmoller Consulting

Introduction Anders Plejdrup Houmøller CEO, Houmoller Consulting. This PowerPoint presentation discusses the unbundling of the gas and oil prices. For a further discussion of the unbundling, please refer to the PowerPoint presentation “ Gas market – the great unbundling ”

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Introduction Anders Plejdrup Houmøller CEO, Houmoller Consulting

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  1. IntroductionAnders Plejdrup HoumøllerCEO, Houmoller Consulting • This PowerPoint presentation discusses the unbundling of the gas and oil prices. • For a further discussion of the unbundling, please refer to the PowerPoint presentation “Gas market – the great unbundling” • At houmollerconsulting.dk, you can download the document from the sub-page Facts and findings. • The PowerPoint presentation is animated • It’s recommended to run the animation when viewing the presentation. • On most computers, you can start the animation by pressing F5. • Now the presentation moves one step forward, when you press Page Down. It moves one step backward, when you press Page Up.

  2. Gas prices in Europe • Historically, gas has often been traded by means of long-term contracts • Where the price of gas was linked to the price of oil. • Long-term contracts and oil-linked pricing have a long history • When gas first began to be used a lot in the 1960s it was a substitute for home heating oil. • Hence, it made sense to anchor the gas price to the oil price. • However, today oil is generally no substitute for gas. • Increasingly, gas is spot traded. • The severing of the linking makes sense • As there’s no longer any correlation between the gas and the oil prices • As a case: the slides no. 4-7 compare the main oil index with gas exchange prices.

  3. Gas and oil prices If you still want to tie your gas price to the oil price: • There is a bewildering array of oil indices, • which can be used for the linking. • And in order to make it even more complex: There may be a time delay, so your gas price this month is linked to an oil price from a previous month. In order to cut a long history short, this presentation uses this oil index: • The monthly prices of the index Europe Brent Spot • Price FOB. No time delay is considered Currency issues are not considered either.

  4. Gaspoint Nordic (Denmark) Former name: Nord Pool Gas Gas prices and oil prices USD/barrel EUR/MWh July 2012 – September 2013 38 190 Gaspoint Nordic: Monthly average of the day-ahead prices 36 180 34 170 32 160 30 150 28 140 26 130 Correlation -0.16 24 120 22 110 Europe Brent Spot Price FOB monthly prices 20 100 18 90 16 80 Jul Sep Nov Jan Mar May Jul Sep Sources: www.eia.gov and www.gaspointnordic.com

  5. Gaspool (Northern Germany) Gas prices and oil prices USD/barrel EUR/MWh July 2012 – September 2013 160 32 Gaspool: monthly average of the day-ahead prices 150 30 140 28 130 26 Correlation -0.17 120 24 110 22 100 Europe Brent Spot Price FOB monthly prices 20 90 18 80 16 Jul Sep Nov Jan Mar May Jul Sep Sources: www.eia.gov and www.eex.de

  6. NCG (Southern Germany) Gas prices and oil prices USD/barrel EUR/MWh July 2012 – September 2013 160 32 150 NCG: monthly average of the day-ahead prices 30 140 28 130 26 Correlation -0.18 120 24 110 22 100 Europe Brent Spot Price FOB monthly prices 20 90 18 80 16 Jul Sep Nov Jan Mar May Jul Sep Sources: www.eia.gov and www.eex.de

  7. TTF (the Netherlands) Gas prices and oil prices USD/barrel EUR/MWh July 2012 – September 2013 32 160 TTF: monthly average of the day-ahead prices 30 150 28 140 26 130 Correlation -0.16 24 120 22 110 Europe Brent Spot Price FOB monthly prices 20 100 18 90 16 80 Jul Sep Nov Jan Mar May Jul Sep Sources: www.eia.gov and www.eex.de

  8. Correlation coefficient a b • For two sets of data, the correlation coefficient measures the degree, to which the two data sets move in parallel. • A correlation coefficient of 1 means the two data sets move in lockstep. • A correlation coefficient of 0 means no tendency at all for the two data sets to move in parallel. • A correlation coefficient of 0.5 indicates a very weak tendency to move in parallel. • A negative correlation coefficient indicates an inverse correlation. Example 1: Correlation(a,b) = 1 as a and b move in lockstep. x Example 2: Correlation(x,y) = -1 asx and y have perfect inverse correlation. y Example 2 Example 1

  9. Thank you for your attention! Anders Plejdrup Houmøller Houmoller Consulting ApS Tel. +45 28 11 23 00 anders@houmollerconsulting.dk aph@copenhageneconomics.com Web houmollerconsulting.dk

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