For many organizations, ranging from a utility concerned with servicing its customers to an industrial plant securing a critical feedstock, ensuring ready access to physical energy commodities is an essential part of their operations. So when the energy commodity in question is one which can be physically stored for later use, many such organizations turn to storage as a means of ensuring continued access to the critical commodity. For other organizations, storage is less a means of stabilizing operations than one of increasing their margins. Regardless of their motivation, organizations must determine the cost of the stored commodity for accounting purposes and/or other internal analyses.
Although several energy commodities may be stored, this issue will illustrate concepts using natural gas since it is one of the most commonly stored energy commodities. However, the general concepts described will apply (with some variation) to all storable energy commodities.
Consider a scenario in which we have bought and sold natural gas at three trading locations (Trading Locations A, B, and C) on two different pipelines (Pipelines 1 and 2). The total of our purchased volume is 40,000 MMBtu per day, the
