Environmental Engineering Reference
In-Depth Information
of bilateral contracts in what is known as over-the-counter (OTC) trad-
ing. These OTC contracts take WTI, Brent of Dubai (which are really just
idealized abstractions) as price benchmarks, and price the oil in ques-
tion at a discount to reflect quality, transport and destination. It is really
through OTC trading that most of the world's oil is allocated and distrib-
uted. However, buyers and sellers of OTC contracts will usually use the
three main futures markets to hedge their risks and exposures on OTC
contracts. This explains how only one percent of trades on the futures
exchanges result in actual delivery, and yet two-thirds of those trading on
these futures exchanges can be classed as having a physical interest in oil.
Oil dwarfs trading in other energy commodities. But these are not
negligible. For instance, about a third of Germany's large electricity
consumption is traded on Leipzig's European Energy Exchange, where
over €85bn changed
hands in 2008. The UK
trades heavily in ener-
gy - about the same as
Germany in electric-
ity, but Britain's daily
gas trade of more than
£500m is around seven
to eight times greater
than in all of the rest
of Europe, where gas is
typically sold on long-
term contracts indexed
to the oil price. In addi-
tion, there is now the
new “commodity” of
carbon which is traded
under the European
Union's Emission
Trading Scheme. In
2008 global carbon
trading transactions
totalled $120bn,
New
Energy Finance
has
estimated.
The European Energy Exchange is based in Liepzig,
Germany, and operates market platforms for trading
in power, natural gas, greenhouse-gas emission
allowances and coal.
