Totem launches European power and gas valuation service

Totem Market Valuations, a UK-based provider of derivatives valuation services, has launched an over-the-counter European power and gas derivatives pricing service targeted at oil majors, merchant energy companies, banks and former state monopolies. Totem is in preliminary discussions to extend the service into the US markets.

Seven major power and gas companies in Europe have signed up to the new service. These institutions will gain average valuations for gas and power forwards and options from Totem to help them validate their mark-to-market positions for energy derivatives positions, Totem's head of commodity valuations, Tom Charlesworth, told RiskNews. But he added that the valuations would not be made public, as the companies involved view long-dated points on the forward curve in non-liquid markets as a competitive advantage.

Charlesworth said valuations would be offered for both 'at-the-money' and 'out-of the money' power and gas derivatives. "This adds value to the forward curve and offers a range of different instruments on the options side," he said. Current power and gas data providers typically focus on the cash side of the business, he added.

The gas contracts covered are for delivery in the UK, but Totem plans to add valuation services for Zeebrugge and Bunde gas delivery locations in November. Power market contracts cover the UK, France and Germany, with the service extended to cover the Netherlands, Austria, Switzerland, Spain and the Nordic region next month.

Charlesworth said data fed into its systems comes from the risk management departments of the energy and gas companies, rather than from traders. He believes this will alleviate questions related to the integrity of the data.

Totem launched a similar service for oil contracts in May this year (Totem launches valuation system to help energy traders).