CASE STUDIES / OPTIONALITY · ANALYSIS · OCT 2025
Cancellation rights add $0.20/MMBtu, more in stress.
A European utility holding cancellable supply and regas slots owns embedded call options. Dropping a costly firm cargo for cheaper US spot pays in every regime, and the value grows with volatility.
+$0.20/MMBtu
AVERAGE EXTRINSIC UPLIFT OF CANCELLATION RIGHTS AT BASE VOLATILITY
A cancellable supply-demand book.
01 · THE BOOK
Firm supply into Italy and northwest Europe, all cancellable for a fee, against partly cancellable demand, with spot outlets in the US, China and India. Regas slots at OLT Livorno come from auctions.
BASE SLOT COST $0.50/MMBTU · CANCELLATION FEE $2M · JAN 2027 - DEC 2029
The uplift grows with volatility.
02 · MONTE CARLO
On identical price paths, the option-on book beats the option-off book in every regime. Forwards see almost none of it: the curve prices the option at $0.04 flat while simulation reveals up to eleven times that.
Monetised on the US supply side.
03 · THE MECHANISM
The right to cancel is used mainly to swap costly firm intake for cheaper US spot, not to chase Asian sales. US spot usage rises with volatility while India and China remain selective outlets.
Slot cost beats the fee.
04 · SENSITIVITY
A forward-price grid of slot cost against cancellation fee shows both erode profit, but the slot is the stronger lever by far. Slot economics deserve the negotiation attention.
05 · THE VERDICT
The cargo-level call pays in every regime: $0.14, $0.20 and $0.45 per MMBtu as volatility rises.
EUROPEAN UTILITY PERSPECTIVE · SLOTS VIA OLT LIVORNO AUCTION · PER-PATH RE-OPTIMISATION
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