Financial Engineering Associates, Inc. (FEA), a leader in the development of software technologies for energy and power risk management, announces the release of @ENERGY/StorageTM - the first program in the company’s @ENERGYÃ software suite developed specifically for use in the management of physical storage assets.
"We designed @ENERGY/Storage to allow highly flexible analysis of the financial contracts and hedging strategies used to maximize the value and profitability of gas storage facilities," commented Laurent Birade, FEA’s global head of sales. "With @ENERGY/Storage we offer power generators, storage providers, as well as producers, marketers and traders of natural gas products an unmatched analytic tool for modeling the option-related nature of their storage contracts."
Mark Garman, FEA Chief Scientist and CEO adds, "A remarkable number of physical assets can benefit from financial valuation via options theory. For example, a gas-fired generator can be viewed as the option to transform natural gas into electricity. A coal mine can be viewed as the option to 'call' coal by paying the 'exercise price' of the labor costs to extract it. Indeed, the most important aspect of the options approach towards assessing value is that asset valuation depends not only upon price levels, but upon price volatilities as well. We are delighted to announce to the energy trading community that FEA now provides a rigorous tool for the valuation of natural gas storage facilities."
Programmed for fast calculation, @ENERGY/Storage incorporates the most useful and important elements required to value natural gas storage contracts. Users input comprehensive operational and financial parameters, including minimum and maximum inventory levels, inventory payout and penalty provisions, as well as "ratchets" - variable injection/withdrawal intervals with costs as functions of discrete inventory levels.
With @ENERGY/Storage, storage-related contracts can be valued using either the familiar Black-Scholes option model or a log-normal mean-reversion model. Multiple trading strategies are included as elements of the contract valuation parameters. Returned results include storage value, buy/sell amounts and optimum hedging strategies. Advanced simulation tools provide the means for conducting scenario studies on storage values; the software also reports inventory cycling and inventory cash flows, for the careful monitoring of storage operations.
According to Mr. Birade, "FEA’s @ENERGY analytics have become the energy industry standard. With this @ENERGY/Storage launch, we are also introducing the first FEA subscription-based licensing. For a monthly-fee, our clients can apply FEA’s proven derivative pricing methodologies to uncover the value of their storage contracts, as well as for their physical storage assets."
FEA’s @ENERGY software suite is a set of Excel add-ins. FEA’s companion product to the @ENERGY suite, ErglibÃ, is an object library permitting maximum flexibility for customization and integration. Erglib and other FEA products are also licensed through the FEA Alliance Partners program as embedded components within customized trading and risk management solutions. Some U.S.-listed companies that are FEA Alliance Partners include Alstom (NYSE:ALS) and PeopleSoft (Nasdaq:PSFT), along with two dozen other leading system vendors.