It is already the case (certainly in the EU) that there is a requirement for a certain level of inventory to be kept, either in addition to, or instead of, government owned stocks maintained in government owned storage.

Depending on whether the market is in backwardation or not this requirement can cost refiners a lot of money.

My proposal allows them to sell this material in appropriate market conditions, and to buy it back as they see fit - and thereby make better use of the capital.

For the financial investors to whom they sell the purchase of units is to all intents and purposes the same as buying shares in an "Exchange Traded Commodity" fund. ie they get no income from their investment (as with gold) but they will profit from a price increase.

An "energy unit" is in effect an "un-geared" and "undated" forward agreement. If gearing is required, a buyer may always borrow trhe unit purchase price, or possibly use options.

There is a significant benefit in terms of costs of maintaining their position, however, because the conventional ETC model means that Investors get hit when by very significant transaction costs when the Fund vehicle "rolls over" the necessary futures contracts.

The outcome could be to free suppliers/distributors from capital constraints, and to allow them to become a pure service provider.


"Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky