Identify and describe at least five key project risks and contract asymmetries:
You are a Houston natural gas storage operator. You usually buy natural gas. From a Mexican producer in the spring and fall and resell the natural gas in the winter to a New York gas utility. All of your contracts have a 5 year term or life.
You have a best efforts fixed quantity (100,000 Mcf per day) purchase contract at fixed prices in pesos with a big national oil company in Mexico. You take title to the gas at the well head (field) in Mexico. You have a best efforts (interruptible) gas pipeline transportation contract for 100,000 Mcf per day at a fixed per Mcf US dollar price with a big US natural gas pipeline to bring the gas to Houston.
Your US dollar sales contract to the New York utility is a firm obligation needing you to deliver up to 100,000 Mcf per day whenever called on by the utility. The sales price is floating at the prevailing New York price in US dollars. You have a gas pipeline contract at fixed prices from Houston to New York for 50,000 Mcf per day. You pay for this firm capacity each day regardless of whether you ship gas that day or not. The New York utility has no obligation to purchase a minimum quantity on the daily or seasonal basis.
As times are tight, you don’t carry insurance. You are un-hedged with respect to natural gas prices and currency fluctuations.