Netback

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Netback is a process in which a price at an upstream trade level is determined from a price at the end user, deducting costs / margins.

Netback was used in an adapted version ("Soft Netback") to determine the price of natural gas at the import level. In the end consumer market (household, industry, power plants) the competing products are essentially heating oil and coal . The maximum possible price for the end consumer that he is willing to pay in competition with another energy source results from the applicability calculation. In negotiations between the producers and the gas importers, import prices were then derived from this, taking into account the specifications of the purchased product (flexibility, payment terms, quality, etc.). Since it is not a schematic calculation based on statistical data, the name "Soft Netback".

The price was “back-calculated” step by step, taking into account the costs and margins of the individual trading levels. Usually every three years this price was adjusted in line with changes in the end-user market in order to adapt the prices of the long-term contracts of the natural gas industry to market developments.

In the current market situation, the market price for the customer results from the pricing on the wholesale markets (hubs: trading points in the network) and from the downstream transport and structuring costs.

example

Example of a calculation scheme for a price that can be created (equivalent price). In the heating market, heating oil and natural gas are competing energy sources. When using heating oil, the cost of purchasing a heating system and its operating costs are higher than when using natural gas. In the applicability calculation, the gas price is now set in such a way that the total costs of both energy sources are the same for the end consumer. Due to the higher distribution costs for gas compared to oil, the import price for gas is below the comparable oil price.