case studies

Unveiling the Hidden Truth in Gas Price Forecasting

Senior management at a leading gas company was facing a crossroads: “lock in” their long-term contracts at current market prices so they would get those same prices in the future, or terminate their fixed contracts altogether so they could play the spot market they thought was going to increase? At the time, conventional wisdom suggested that, as OPEC tightened supply, the market price for oil would increase, and it would drag gas up with it. With the fixed price contracts, the company feared significant losses as their gas could potentially be sold well below rising spot market rates, and they would be faced with the volatility and uncertainty of the spot market. Then ArrowHead stepped in to provide clarity and in fact quite an astounding answer.

altUnveiling the Hidden Truth in Gas Price Forecasting

Challenges

  • 01

    Supply & Demand

  • 02

    Price

  • 03

    Risk

All signs pointed toward a global increase in oil prices due to OPEC's supply restrictions and rising crude costs. Confronted with this possibility, the company faced the risk of selling oil significantly below market value if they continued with fixed contracts.

The company was concerned about the potential for substantial losses given the possibility their gas might be sold well below prevailing market rates. They were prepared to terminate their fixed contracts and embrace the spot market, expecting considerable gains through the anticipated soaring gas prices.

Based on anecdotal evidence and conjecture, The Company was ready to give up the stability and predictability of fixed contracts in favor of the price volatility and market competition associated with spot markets.

Armed with their formidable World/North American gas model, Arrowhead embarked on a series of "What if?" analyses, challenging the prevailing wisdom.

The solution

The results spoke for themselves, and the company reaped the rewards of their analytics-driven, data-driven decision-making. By relying on the model's price trends, they secured above-market contract prices for their gas, generating hundreds of millions of dollars in revenue over the ensuing years.

Results and Benefits

01

Market Analysis

According to the model's insights, gas prices were primed for a significant decline in the coming months due to a supply surplus. Contrary to expectations, their fixed contracts would prove increasingly advantageous, securing prices well above the market rates.

Results and Benefits

02

Price Forecasting

According to the model's insights, gas prices were primed for a significant decline in the coming months due to a supply surplus. Contrary to expectations, their fixed contracts would prove increasingly advantageous, securing prices well above the market rates.

Results and Benefits

03

Decision Analysis

According to the model's insights, gas prices were primed for a significant decline in the coming months due to a supply surplus. Contrary to expectations, their fixed contracts would prove increasingly advantageous, securing prices well above the market rates.

Results and Benefits

04

Outcome

According to the model's insights, gas prices were primed for a significant decline in the coming months due to a supply surplus. Contrary to expectations, their fixed contracts would prove increasingly advantageous, securing prices well above the market rates.

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