In a word: yes. I wanted to post a follow up to a comment to my recent post “2015 Futures.” That comment argued, contrary to my own position, that the availability of crude oil futures out to 2015 didn’t substantially improve the ability of oil producers to ensure profitability of “expensive” oil ventures. Here it is:
Producers could fix their revenues out 5 yrs well before this listing. 1st, most large hedgers are likely to use calendar averaging swaps, not futures (which impose onerous variance margins, ie ongoing cashflow swings .) Swaps are cash settled against an index (typically NYMEX but often Platts) and are secured by an ISDA agreement and the balance sheets of the contarcting parties. Margin isn't assessed day to day so often it amounts to a long term loan.
The interbank market has quoted long dated swaps in these tenors for some time. Morgan Stanley and J. Aron are two of the larger market makers, but any highly rated investment bank would likely quote something out that far.
It is certainly true that swaps exist, and so do bilateral forward contracts for delivery which are arguably more important in this regard. The reason that exchange traded futures—negotiable instruments—are critical is that they alone most accurately fix the market price that is the basis of swaps and forwards. Any two parties can enter into a contract for delivery of oil at any point and for any point in the future. You can enter a binding contract to deliver oil for $10 a barrel in the year 2099 if you want. The value of an exchange-traded, negotiable instrument is that there is great volume, liquidity, and transparency (here on the NYMEX crude oil pit), and this sets the effective price. The comment above essentially concedes this point in stating that swaps are settled against an index, such as NYMEX. The ultimate point is that the availability of futures out to 2015 (8 years out) is significant because it acts to more effectively fix a value on oil at that distant time, and therefore makes any instrument to “lock in” that price—whether that is a future, swap, forward, etc.—more accurately to the extent that it can index against the value of the NYMEX future.
I should also point out that my choice of “Canadian Tar Sands” as an example was poor, as it is already being produced in significant quantities. I think that the 2015 futures remove one obstacle from producing more expensive tar sands reserves, but the far better example is
Technology under development in a laboratory is great. Show me the projects.