SELECTING HEDGING IN REDUCING MARKET RISK OF NATURAL GAS PRICE VOLATILITY IN ENERGY INDUSTRY

• Main Author: ANINDITA (NIM : 29110304) Pembimbing : Erman Sumirat, SE. AK., M.Bus., ACINTYA
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/17751
• Institution: Institut Teknologi Bandung

Natural gas lately has becoming a favorable commodity to be traded. The increasing price of crude oil leads people to seek for inexpensive energy resource substitute. This increasing demand of natural gas affects the natural gas spot price to be increasing and apparently its price is depending on crude oil price right now. Fortunately, natural gas trading in Indonesia is not following natural gas spot price. Indonesia has its own rule to regulate its natural gas price. Instead of following market price, natural gas price in Indonesia has been regulated to a certain price range by government. This regulation is purposed to protect either the buyer or the seller from natural gas price volatility. However, this regulation has some negative responds from parties feeling harmed by the regulated price in Indonesia.Hedging is a tool to reduce market risk for instance volatility of a commodity price. There are three types of hedging tools which are very common to be used, namely forward contract, future contract, and options. In this analysis, those three kind of hedging tools will be simulated and the result being compared. In the meantime, it is true that free floating price gives more benefit compare to flat regulated price. It is proved by a simulation one of PT. Energy Mega Persada (EMP)‟s project. The project itself purposed to produce crude natural gas and sell it to Perusahaan Listrik Negara (PLN) which is one of the priorities of natural gas selling regarding to Ministry of Energy and Mineral Resources Regulation in Indonesia. However, if free floating price is being applied in Indonesia, there is risk of volatility has to be faced either for buyer or seller.On the other hand, forward and future contract give the optimum benefit if it is being used to a decreasing and un-volatile market price condition. It is shown by how much money can be protected by using it. On the opposite, options give its holder to retain in decreasing trend line condition. However, option has an explicit cost which will be burdensome for the company or the holder.All in all, if free floating price is true being applied, hedging tools have to be used to against its volatility. From this analysis, it is being proved that forward contract is the most suitable hedging tools to be used. Despite of its advantage financially, the forward contract is more flexible to be used. The contract can be tailored regarding to our needs