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SEASONAL SUPPLIES
Supplies of gas used for winter demand. This often includes gas from storage systems.

SEASONALITY
All energy futures markets are affected to some extent by an annual seasonal cycle or "seasonality." This seasonal cycle or pattern refers to the tendency of market prices to move in a given direction at certain times of the year.

SECURITIZATION
The packaging of assets (normally debt of some description) into securities. These securities may be higher-yielding and more freely tradeable than the unpackaged assets. Securitizing production revenues has become increasingly popular with commodity producers over the last few years. Electric utilities have also started securitizing their retail revenue.

SELLER’S NOMINATION CONTRACT
In gas, the seller nominates the amount of gas it expects to deliver in a range around the estimated daily contract quantity (EDCQ). The buyer is obliged to take-or-pay for the nominated quantity on a daily basis.

SETTLEMENT RISK
Settlement risk is the risk that arises when payments are not exchanged simultaneously. The simplest case is when a bank makes a payment to a counterparty but will not be recompensed until some time later; the risk is that the counterparty may default before making the counter-payment.

SHIPPER
A company which transports gas along a pipeline system. Shippers need to be registered with the local regulatory body. In UK gas market terms, a shipper is a company which buys gas at the beach and pays TransCo to transport the gas along the pipeline system.

SHRINKAGE
Gas losses in the transportation and distribution systems or gas volume lost through the extractions of liquid gases and the removal of water and other impurities.

SHRINKAGE ALLOWANCES
The percentage of gas that is expected to be lost naturally during the transportation and distribution of gas.

SLEEVING
A transaction whereby a counterparty, which does not have credit with another counterparty, asks a third party that has credit with both parties to be a middle person to facilitate a trade. This practice achieved some notoriety in 1998 when it emerged that the collapsed US power marketer Power Company of America had been regularly sleeving forward electricity deals.

SPARK-SPREAD/SPARK ARB(ITRAGE)
The difference between the price of electricity sold by a generator and the price of the fuel used to generate it, adjusted for equivalent units. The spark spread can be expressed in $/MWh or $/MMBm (or other applicable units). To express in $/MWh, the spread is calculated by multiplying the price of gas, for example (in $/MMMBtu), by the heat rate (in Btu/KWh), dividing by 1,000, and then subtracting the electricity price (in $/MWh).

SPECIFIC RISK
Specific risk is the portion of a security’s market risk which is unique to that security, rather than the market in general – eg, the risk that an individual stock’s price may vary because of its industrial sector rather than the broader equity market.

SPECULATION
The opposite of hedging. The speculator holds no offsetting cash market position and deliberately incurs price risk in order to reap potential rewards.

SPOT
Synonymous with cash or prompt barrels - the spot market is the physical/cash crude, refined product, gas or electricity market.

SPREAD OPTION
An option written on the differential between the prices of two commodities. Spread options may be based on the price differences between prices of the same commodity at two different locations (location spreads); prices of the same commodity at two different points in time (calendar spreads); prices of inputs to, and outputs from, a production process (processing spreads); and prices of different grades of the same commodity (quality spreads).

STANDARD DEVIATION
Statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution. Indicates probability of a variable or price falling within a certain width or band around the mean.

STOCHASTIC PROCESS
A stochastic process is one which can be described by the evolution of some random variable over some parameter such as time. Geometric Brownian motion, commonly used to describe the movements of asset prices, is one example.

STOCHASTIC VOLATILITY
The Black-Scholes model of option pricing assumes that stock prices follow geometric Brownian motion with constant volatility and interest rates. The assumption of constant volatility fails for real markets, however, prompting a number of attempts to model volatility as a stochastic process. The most notable of these is the Heath-Jarrow-Morton framework.

STORAGE CAPACITY
The amount of gas which can be stored to cover peak demand.

STORAGE GAS
Gas kept in storage in order to balance supply and demand over time.

STORAGE MANAGER
A company which operates a storage facility where gas can be stored during periods of low demand for use during seasons of greater demand.

STRADDLE
The combination of a put and a call option with the same expiration date and strike price. A buyer of a straddle hopes that the volatility of the underlying prices will increase, creating profit opportunities.

STRANDED COSTS
The costs accumulated by electric utilities which have built expensive power plants and entered into high-priced power purchase agreements, which are no longer commercially viable when competition forces prices down and reduces market share.

STRANDED COST RECOVERY
Many electric utilities in the US have tried to stranded costs by pushing their state government to impose a tariff charge the state’s electricity on all consumers to pay for stranded costs. This process is as stranded cost known recovery.

STRANGLE
An options position consisting of the purchase or sale of put and call options having the same expiration, but different strike prices.

STRESS-TESTING
To stress-test is to simulate an extreme market event and examine what happens to prices under the ‘stress’ of that behaviour.

STRIKE PRICE
The price at which the underlying futures contract is bought or sold in the event an option is exercised. Also called an exercise price.

SUPPLY POINT NOMINATION
The nomination which a gas shipper gives the pipeline owner when the shipper signs up a new customer. The pipeline owner then works out the charge for transporting gas to the new supply point. Once the shipper accepts this charge, he takes responsibility for the transportation charges to that particular supply point.

SWAP
An agreement whereby a floating price is exchanged for a fixed price over a specified period. It is an off-balance-sheet financial arrangement which involves no transfer of physical energy; both parties settle their contractual obligations by means of a transfer of cash. The agreement defines the volume, duration and fixed reference price. Differences are settled in cash for specific periods – monthly, quarterly or six-monthly. Swaps are also known as contracts for differences and as fixed-for-floating contracts.

SWAPTION
An option to purchase (call option) or sell (put option) a swap at some future date.

SWING
Variations in gas demand.

SWING FACTOR
In gas purchasing agreements the swing factor is a measure of the flexibility to vary nominations and is expressed as a ratio of peak to average supplies.

SWING OPTION
The right to take more or less of a specified commodity. The opportunity to swing up is effectively a call option on the commodity specified in the contract, and the opportunity to swing down is a put option on the commodity, subject to obligations to take certain quantities over the entire life of the contract. Swing options are most commonly used in the gas market.

SYSTEMIC RISK
The risk that the financial system as a whole may not withstand the effects of a market crisis. In recent years, attention has been focused on the derivatives markets, where a handful of players dominate trading. The concern is that the failure of any of these might have serious and widespread consequences for others in the market.