Valuation in incomplete energy commodity markets

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In addition to being a major purchaser of crude oil for BPs refineries in the United States, BP Canada Energy Group ULC ("BP") ranks among Canada's top marketers and traders of natural gas, crude oil and financial products. Investments in energy assets often require large capital outlay and can generate extremely risky cashflows. As part of its marketing and trading activities, BP Canada markets structured financial derivative contracts designed to help manage these risks. However, it is frequently the case that the markets for basic vanilla contracts are inactive, creating difficulties when it comes to determining the value of a contract. This project seeks to help BP develop a best practice approach to valuation in such incomplete market settings. Reliable valuations give rise to increased confidence in the market, and this can in turn serve to encourage investment in energy infrastructure.