Energy Transfer 2015 Annual Report Download - page 219

Table of Contents
12. DERIVATIVE ASSETS AND LIABILITIES:
Commodity Price Risk
We are exposed to market risks related to the volatility of commodity prices. To manage the impact of volatility from these prices, we utilize various
exchange-traded and OTC commodity financial instrument contracts. These contracts consist primarily of futures, swaps and options and are recorded at
fair value in our consolidated balance sheets.
We use futures and basis swaps, designated as fair value hedges, to hedge our natural gas inventory stored in our Bammel storage facility. At hedge
inception, we lock in a margin by purchasing gas in the spot market or off peak season and entering into a financial contract. Changes in the spreads
between the forward natural gas prices and the physical inventory spot price result in unrealized gains or losses until the underlying physical gas is
withdrawn and the related designated derivatives are settled. Once the gas is withdrawn and the designated derivatives are settled, the previously
unrealized gains or losses associated with these positions are realized.
We use futures, swaps and options to hedge the sales price of natural gas we retain for fees in our intrastate transportation and storage segment and
operational gas sales on our interstate transportation and storage segment. These contracts are not designated as hedges for accounting purposes.
We use NGL and crude derivative swap contracts to hedge forecasted sales of NGL and condensate equity volumes we retain for fees in our midstream
segment whereby our subsidiaries generally gather and process natural gas on behalf of producers, sell the resulting residue gas and NGL volumes at
market prices and remit to producers an agreed upon percentage of the proceeds based on an index price for the residue gas and NGL. These contracts are
not designated as hedges for accounting purposes.
We use derivatives in our liquids transportation and services segment to manage our storage facilities and the purchase and sale of purity NGL. These
contracts are not designated as hedges for accounting purposes.
Sunoco Logistics utilizes swaps, futures and other derivative instruments to mitigate the risk associated with market movements in the price of refined
products and NGLs. These contracts are not designated as hedges for accounting purposes.
We use futures and swaps to achieve ratable pricing of crude oil purchases, to convert certain expected refined product sales to fixed or floating prices, to
lock in margins for certain refined products and to lock in the price of a portion of natural gas purchases or sales and transportation costs in our retail
marketing segment. These contracts are not designated as hedges for accounting purposes.
We use financial commodity derivatives to take advantage of market opportunities in our trading activities which complement our transportation and
storage segment’s operations and are netted in cost of products sold in our consolidated statements of operations. We also have trading and marketing
activities related to power and natural gas in our all other segment which are also netted in cost of products sold. As a result of our trading activities and
the use of derivative financial instruments in our transportation and storage segment, the degree of earnings volatility that can occur may be significant,
favorably or unfavorably, from period to period. We attempt to manage this volatility through the use of daily position and profit and loss reports
provided to our risk oversight committee, which includes members of senior management, and the limits and authorizations set forth in our commodity
risk management policy.
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