Overview
The commercial question is how a defined assumption changes the budget. It is not how the vessel should operate or which fuel it should use. Keeping the units and source of each input visible allows the desk to test prices without implying technical capability, contractual recovery or a universal cargo valuation method.
Key takeaways
- Match each price to the unit of the quantity it values.
- Obtain energy or fuel quantities from the responsible source for the defined scenario.
- Separate cash fuel expenditure from any assigned cargo-energy value.
- Test quantity and price movements independently before combining them.
- Reconcile the model with cargo revenue so the same effect is not counted twice.
Define the model boundary
Start by describing the programme and the cost view. Is the analyst preparing a cash budget, an internal voyage contribution estimate or a sensitivity for a particular commercial agreement? The answer determines which components belong in the model.
Identify the responsible source for the quantity assumptions and record their status. An estimate supplied for an early screening exercise should not become a final operating assumption merely because it has been copied into a later spreadsheet.
For an LNG-related energy quantity, preserve the supplied unit and valuation basis. If another part of the business works in a different unit, seek an authorised reconciliation. Do not introduce a standard-looking conversion without confirming that it suits the actual information and analytical purpose.
GIIGNL's custody-transfer resources address LNG measurement and calculation practices. They support treating the measurement basis as substantive information rather than a formatting choice. GIIGNL resources.
The commercial model should reference the responsible methodology or supplied calculation without attempting to reproduce technical measurement procedures for the reader.
Separate quantity uncertainty from price uncertainty
A price sensitivity holds the relevant quantity constant and changes the valuation input. A quantity sensitivity holds the price constant and changes the authorised scenario quantity. Combining them is useful after the separate effects are visible.
This structure prevents the analyst from attributing the entire movement to the market when the programme assumption also changed. It also helps the business identify which input needs better evidence.
A quantity revision can arise from a changed scenario or improved information. The model should state the reason supplied by the responsible source without inferring a technical cause.
| Input or output | Required label | Review question |
|---|---|---|
| Energy quantity | Unit, source and scenario | Is this the quantity the valuation is intended to cover? |
| Energy price | Currency per stated energy unit | Does it match the quantity's unit? |
| Other fuel expenditure | Separate quantity and price basis | Is it additional to the energy component? |
| Quantity revision | New assumption and reason | What changed in the scenario or evidence? |
| Price revision | Explicit alternative value | Is this a stress input or an observed transaction? |
| Combined total | Defined cash or management view | Are any components already counted elsewhere? |
The labels should remain visible in the working sheet, not only in a separate methodology note that users may overlook.
Calculate an energy-price example
The following example uses invented quantities and prices for a defined management-cost scenario. It does not represent vessel performance, current energy prices, a measurement conversion or a contractual entitlement.
ILLUSTRATIVE: Assume an authorised planning input of 10,000 MMBtu for an energy component valued at USD 10 per MMBtu. Its base value is 10,000 × 10 = USD 100,000. A separate purchased-fuel component is assumed at USD 30,000, producing a base management-cost total of USD 130,000.
At the same energy quantity, a price of USD 12 per MMBtu produces an energy value of USD 120,000 and a combined total of USD 150,000. The price effect is USD 20,000.
Now assume a revised energy quantity of 11,000 MMBtu. At the base price, the energy value is USD 110,000, so the quantity effect is USD 10,000. Applying the stress price to that revised quantity gives USD 132,000 for the energy component and USD 162,000 including the unchanged separate fuel component. The combined increase from the base total is USD 32,000.
| Scenario | Energy value | Separate fuel component | Total |
|---|---|---|---|
| Base quantity and price | USD 100,000 | USD 30,000 | USD 130,000 |
| Price stress only | USD 120,000 | USD 30,000 | USD 150,000 |
| Quantity revision at base price | USD 110,000 | USD 30,000 | USD 140,000 |
| Revised quantity and stress price | USD 132,000 | USD 30,000 | USD 162,000 |
The combined movement is not simply the sum of the isolated base-case effects because the higher price also applies to the additional quantity. The scenario table makes that interaction visible without requiring a complicated model.
Check the wider cargo treatment
If the energy component represents an assigned value associated with cargo use, identify where that effect appears in the sales or inventory model. A net cargo revenue calculation may already incorporate some or all of the consequence.
The analyst should reconcile the model with the responsible commercial and finance teams before adding the component to a combined trade result. Different line names do not establish that costs are economically distinct.
Keep cash expenditure and assigned value separate in the report. A management-cost total may be appropriate for comparing scenarios while remaining different from the payments the business expects to make.
Contractual treatment is another separate question. Check the relevant agreement and obtain authorised review before describing any amount as recoverable, deductible or payable by another party. The sensitivity calculation does not determine those rights.
Fictional case: an unlabelled energy input
A fictional LNG analyst receives an energy quantity from a planning team and a price assumption from a commercial colleague. The spreadsheet labels both simply as gas inputs. A later user replaces the quantity with a figure taken from a volume-based cargo sheet without changing the formula.
The resulting total looks plausible enough to pass a casual review. A second analyst checks the units and discovers that the inputs no longer match. The team restores the authorised energy quantity, labels every field with its unit and records the source of the valuation basis.
It also separates the assigned energy value from purchased-fuel expenditure and checks the cargo revenue model for overlap. The corrected report explains the scenario's purpose and limits rather than presenting one unexplained fuel total.
The error was not advanced mathematics. It was a loss of meaning when information moved between teams. Clear units and source references prevent that failure more effectively than adding decimal places to the result.
Common mistakes
Multiplying a price by a quantity expressed in an incompatible unit can produce a misleading but plausible total. Keep units visible and verify the basis before calculating.
Another mistake is to attribute a combined price-and-quantity movement entirely to price. Show the separate scenarios and their interaction.
Finally, avoid adding an assigned cargo-energy value without checking whether the cargo model already contains the same effect. Reconcile the full commercial view before reporting contribution.
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Educational information only; not legal, financial or trading advice. Contract wording and applicable rules control. Verify current requirements and obtain qualified advice before acting.
Frequently asked questions
Should the analyst convert cargo volume to energy?
Use an authorised basis from the responsible source when such a conversion is required. This commercial framework does not supply a generic factor or a technical measurement method.
Is the scenario total a cash payment forecast?
Only if all included components represent cash expenditure on the stated basis. If it includes assigned cargo value, label it as a management-cost view and show the cash component separately.
Why does the combined increase exceed the isolated effects?
The revised price applies to the additional quantity as well as the original quantity. The scenario table captures that interaction explicitly.
Can the result be used to claim an amount from a counterparty?
The arithmetic alone does not establish a claim. The relevant agreement and authorised interpretation determine any allocation or recovery between parties.