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HMRC internal manual

Oil Taxation Manual

HM Revenue & Customs
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PRT: valuation of non-arm's length disposals and appropriations - gas - valuation of light gases from 1 January 1994 - swing

Although gas is increasingly sold on the basis of no swing and 100% take or pay it is not uncommon to find different provisions in longer term contracts. As the inclusion of swing gives the buyer greater flexibility we consider that a higher price should be paid for gas sold under a contract containing a provision for swing. The value of swing can, in theory, be determined in a number of ways, but the most common ways that LB Oil & Gas has seen are comparing the alternative costs of storage and the use of forward prices. The Transco storage booklet contains a computation of the cost of swing determined by comparison to the costs of using the Rough storage facilities.


The example below shows how published prices can be used to value swing. It is based on the assumption of sales of 500,000 therms a day, on the basis of 130% swing which will be fully utilised in the period January to March and the need to balance sales at 500,000 therms a day over the whole of the year. The prices are purely illustrative.

Gas Year Nominations  1Q  2Q  3Q  4Q 
  500,000 Th\day +30%    


650,000 500,000 -30%


Published prices  Annual  2Q  4Q 
  18 p    
per therm 22 p
per therm 14 p
per therm
Cost of gas  Buy Annual  Buy 2Q Swing  Sell 4Q Surplus  Total cost 
365 days X 18 p\Th x 500k Th\day £32,850,000      
90 days X 150,000 Th\day X 22p\Th   £2,970,000    
90 days X 150,000 Th\day X 14p\Th     £1,890,000  
1+2-3       £33,930,000

Value of 30% swing = £33.93m \ 500,000 Th\day\ 365 days = 18.592p\Th


Cost of annual flat gas at 18p\Th

30% swing costs 0.592 p\Th

It can therefore be inferred that 10% swing costs 0.197 p\Th (that is, 0.592\3).