ACQUISITION OF NATURAL GAS AT SUMMER PRICES

Faltan:211 581.66€
Min.:0.00€
Tasa de interés:23%
Período:9 meses
Este préstamo viene con una garantía de recompra Crowdestor.
Objetivo: 350 000€
Min. objetivo: 25 000€
Abre: 2020/03/19
Vence: 2020/04/10
Categoría: Energía
Ubicación: Incukalns, Latvia
Inversoras/Inversores: 535

SUMMARY

TTF, the most liquid natural gas trading hub in Europe, located in the Netherlands, has served a reliable point of reference for concluding natural gas trading deals for at least the last decade. The average price of front-month contracts traded during any given month has become the natural gas industry standard of setting prices for deliveries in the following month.

Depending on factors like severity of winter weather in Northwest Europe, demand for gas-fired power production and prices of other fuels, price has fluctuated in the past 5 years ranging from 12 EUR/MWh in April 2016 to 28 EUR/MWh in October 2018. Historical prices shown in Chart.

It has always been the case that the heightened demand for natural gas in the winter period lifts the natural gas prices up from their summer lows.

As of mid-March 2020, the price has reached a new historical minimum of 8.9 EUR/MWh. The single-digit price for 1 megwatt-hour of natural gas is truly a rarity in the futures market, as price levels this low have not been observed for at least 10 years.

The rapid decline in future prices for summer 2020 natural gas deliveries have been created by a combination of factors including a stagnating world economy and an ever-increasing availability of liquified natural gas (LNG), called the LNG glut.

However, the recent shock waves, sent by the Saudi-Russian clash over oil production volumes, are surely to negatively affect the U.S. LNG supply and the seemingly never-ending stream of cheap natural gas, raising the probability of expensive natural gas in Europe this winter considerably higher. As Chart shows, TTF front-month contract prices have historically been well above the price, at which natural gas can be purchased today.

This makes a clear and profitable business case of purchasing the gas now at summer prices, storing it for 3-8 months and selling it at a considerable premium.

It is expected to sell natural gas during October 2020 until April 2021 with an average price FFT price of 13 – 15 EUR/MWh, ensuring a profitability margin of the transaction in a range of 40%-60%.

Total amount to be purchased – up to 125 000 MWh of natural gas, depending on activity of investors. Gas will be stored in Incukalns Underground Gas storage, Latvia, with a storage tariff of 0,82397 EUR/MWh.

Funding is placed into the special purpose entity (“SPV”) controled by CROWDESTOR Security Agent.  The SPV will be the sole ownership holder of the natural has acquired. 

Interest rate is fixed at 23% per year. Loan term - 9 months. Interest payments and Loan principal is paid in the end of Loan term. 

 

LOAN

Minimum target: 25'000 EUR
Maximum target: 350'000 EUR
Investment period: 9 months
Interest rate: 23% per annum 
Loan repayment: interest payments are paid together with the Loan principal payment in the end of Loan term.
Crowdestor BuyBack fund: Yes
Location: Incukalns Underground Gas Storage
Security: collateral and ownership on natural gas, SPV owned and controled by Crowdestor Security Agent

 

BORROWER

Legal entity: SIA "CR 10", an SPV established, owned and managed by CROWDESTOR Security Agent
Entity established: only for project "Acquisition of natural gas at summer prices"
Registration number: 52103099711
Registration date: 03.10.2019
Experience in energy industry: The CEO and owner of CROWDESTOR, Mr Janis Timma, who also leads the current deal, since 2013 has been CEO of the Combined Heat and Power plant association of Latvia with members up to 40% of all natural gas cogeneration plants under 4 MW.  He has had active role in communication with government institutions regarding energy sector regulation in Latvia, banks regarding financing options, energy companies regarding deliveries etc, which means the Borrower has direct contact with a large amount of gas consumers. 

More about the Business opportunity

TTF, the most liquid natural gas trading hub in Europe, located in the Netherlands, has served a reliable point of reference for concluding natural gas trading deals for at least the last decade. The average price of front-month contracts traded during any given month has become the natural gas industry standard of setting prices for deliveries in the following month. Depending on factors like  severity of winter weather in Northwest Europe, demand for gas-fired power production and prices of other fuels, the front-month contract price has fluctuated in the past 5 years ranging from 12 EUR/MWh in April 2016 to 28 EUR/MWh in October 2018.

It has, however, always been the case that the heightened demand for natural gas in the winter period for both heat and power production needs lifts the natural gas prices up from their summer lows.

Moreover, due to the overwhelming needs of gas producers, traders and consumers, a forward market for TTF prices has been established by Intercontinental Exchange (ICE) which allows for hedging the price of traded natural gas well into the future. The futures market allows for fixing the purchase price of natural gas at any given point in time for any monthly period several years in the future. 

 

As of mid-March 2020, the future price for natural gas in August is hovering at around 8.9 EUR/MWh. The single-digit price for 1 megwatt-hour of natural gas is truly a rarity in the futures market, as price levels this low have not been observed for at least 10 years.

The rapid decline in future prices for summer 2020 natural gas deliveries have been created by a combination of factors including, but not limited to a stagnating world economy and an ever-increasing  availability of liquified natural gas (LNG), called the LNG glut. However, the recent shock waves, sent by the Saudi-Russian clash over oil production volumes, are surely to negatively affect the U.S. LNG supply and the seemingly never-ending stream of cheap natural gas, raising the probability of expensive natural gas in Europe this winter considerably higher. As Chart 1 shows, TTF front-month contract prices have historically been well above the price, at which natural gas can be purchased today for August. This makes a clear and profitable business case of  purchasing the gas now at summer prices, storing it for 3-8 months and selling it at a considerable premium - a business model frequently employed by many commodity traders all around the world.

 

Structure

In order to exploit this opportunity and protect investors interests, we at CROWDESTOR have created an SPV that we control 100% and agreed on a cooperation with a leading Latvian natural gas trader - JSC AJ POWER GAS ( http://www.ajpower.lv ), with 15 million EUR sales in 2019, annual portfolio exceeds 1 000 000 MWh, and groups turnover of 87 million EUR in 2019,  hereinafter referred to as Trader. As part of this effort, we have concluded a gas trading agreement with the Trader, which stipulates the following:

  • Trader secures storage capacity at the Incukalns Underground gas storage (IUGS) - the only functional storage in the Baltic countries with the total storage capacity of 24 000 000 MWh of natural gas;

  • Trader procures and stores up to 125 000 MWh of natural gas in IUGS, then selling it, combined with the required storage capacity, to SPV at the low summer price level;

  • In order to gain exposure to the higher winter prices, SPV sells the gas back to traders during winter months at index-linked price.

Please, see Graph2 for a graphic view of the business structure:

The cooperation with Trader has allowed SPV to secure access to highly demanded storage space at IUGS (available capacity was overbooked by a factor of 4 upon the opening of capacity reservation).

The high demand for the storage capacity is another indication of the high natural gas price levels expected by natural gas suppliers looking to exploit the summer-winter spread in their favor.

Additionally, the gas trading agreement with Trader eliminates volume risk for SPV, as Trader has agreed to re-purchase 100% of the stored natural gas, as well as the operational risk connected to the required know-how required for acquiring natural gas and storage capacity.

In essence, for Crowdestor investors SPV acts as direct investment vehicle into the summer-winter natural gas spread without the otherwise considerable financial and market risks associated with commodity trading.

 

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