Commodity Technology Advisory (ComTech) has been tracking the rise of ETRM solutions delivered in the cloud over many years. While the potential benefits and cost savings associated with ETRM in the cloud have always appeared to be robust, uptake across the industry has proven to be quite slow until relatively recently. Although many other industries migrated to the cost efficiencies of the cloud, the energy industry lagged behind. The key concern quoted by the industry was usually data security, despite companies often having back-up and recovery procedures in place that result in trade and position data being stored off-site. Then, commodity prices collapsed generally, led by energy, and costs began to rise inexorably as new regulations progressively came into force. Margins were squeezed and structural changes have occurred across the industry so that profitable trades are a good deal harder to find.
While ETRM and other IT initiatives were put on hold or scaled back to reduce costs, rapid market changes necessitated ETRM functional changes – compelling energy companies to seek more cost effective ways to procure the right ETRM platform. As their ETRM and related solutions have quickly become outdated, these systems are effectively deadweight – holding those businesses back from responding to change and streamlining business processes. In this environment, ETRM in the cloud has become a popular alternative to “traditional” on-premises software given its low cost of entry, potential lower total cost of ownership and promise of cheaper maintenance and upgrades. Confirming this trend, a recent survey conducted by ComTech looking at trends in a lower energy price environment found that around 30% of surveyed European energy traders had an increased urgency to upgrade or replace their current ETRM, and that almost 50% would consider ETRM in the cloud as a way forward.
Read the document online or download it from the CTRM Center The Era of ETRM in the Cloud
The commodity business has always been fraught with complexity, but under increasing scrutiny from legislators, regulators, consumers, and therefore auditors, that complexity is growing steadily and inexorably. One significant challenge in which complexity is increasing, is the need to track commodities, consumables, and fuels, from source to market. It is no longer the case that buyers can simply pick the best price in choosing a supplier as concerns over issues like food safety, as well as an increasingly savvy consumer that is concerned over abusive labor practices, workers rights, and environmental issues, for example, are increasing the traceability complexity across almost all supply chains.
The recent Trade Facilitation and Trade Enforcement Act, for example, has tightened import controls into the US allowing customs to detain and seize any product thought to have been produced with child labor. The legislation has already been used to detain a shipment entering the US. In order to release a shipment, the owner is required to prove that the custom’s suspicions are incorrect. This is a good example of how a myriad of new rules and regulations are forcing commodity firms to pay much closer attention to traceability. Increasingly, the onus is on the owner of the commodity or product to prove compliance with standards for environment, labor and sustainability etc.
Read the document online or download it from the CTRM Center PROVE IT OR ELSE! Traceability – regulation and consumer demands on your data management
The collapse in wholesale energy prices, which began in earnest mid-year 2014, has resulted in a prolonged period of declining profits, declining trading volumes, bankruptcies in the up-stream markets, and a general malaise in the global wholesale energy markets. Though low prices are a benefit for consumers, this period has been extremely challenging for many in the energy industry, particularly those that produce and trade energy commodities.
Though oil prices have recently begun to rise off their 13 year low set in January of 2016, other energy commodity prices, such as power and natural gas, continue to be moribund – in a persistent oversupplied condition and with unpredictable volatilities. Given these conditions, Commodity Technology Advisory, with the support and coordination of study sponsors FIS and Capco, sought to examine the impact on the usefulness, utility, and capabilities of Energy Trading and Risk Management (ETRM) systems to improve financial performance and profitability, mitigate risks, and help find market opportunity for companies that operate in this difficult market.
Read the document online or download it from the CTRM Center ETRM in a Low Commodity Price Environment
Commodity markets have always been uncertain and have often exhibited extended periods of volatility. Events such as the collapse of Enron and other marketers, the financial crisis, and more recently, BREXIT, have all had massive impact, and yet, after each event, measures have been put in place, both regulatory and in terms of controls, to protect markets, margins and profits. Each tumultuous event has brought learning, innovation and improvements in business processes. The energy industry has also learned from these experiences; adopting better and improved risk controls, systems and tools to predict, protect and profit. Yet, now may be the time to innovate once again to better protect margins amid increasing costs and lower commodity prices.
Energy producers, traders and consumers today face a challenging trading environment with more regulatory oversight, lower prices, increasing costs and almost constant volatility. As a result forward thinking energy companies are already adopting a more closely integrated treasury and trading approach, a potentially overlooked opportunity by many. Typically, trading and treasury are separate areas of business with limited or no integration between them. The traders work to sell commodities at the best price or to profit from trading, while the treasury function with its concern over available cash, navigating future investments and doing so in the right currency and at the right location, has a range of responsibilities, including FX and IR hedging, broader credit management, debt and capital management and more. Usually, the treasury department gets a fixed time view of trading positions to work with and can miss opportunities to protect profits or control costs as a result as these exposures change rapidly. Even large oil and gas majors have experienced the situation where trading has a good month but FX rates moved against them to give an entirely different result. Despite believing that they were hedged, FX markets went against the company leaving it with significantly eroded traded profits.
Read the document online or download it from the CTRM Center Next Generation Integrated Treasury and Trading for Energy and Commodity Companies
The North American power and gas markets are undergoing an accelerating evolution driven by increasing regulation, new and emergent technologies, and a persistent surplus of natural gas brought about by the “shale revolution.” The transformation from a coal-centric power market to one reliant upon renewables and natural gas for baseload power generation has had profound operational and commercial implications for both the electricity and natural gas markets.
Much of the change that has emerged has been catalyzed by regulation at the federal, regional and state levels, including emissions/greenhouse gas regulation and renewable portfolio standards. These regulatory mandates have been largely answered by technology – cheaper and more efficient solar and wind generation, abundant sources of natural gas from long-reach lateral drilling and massive hydraulic fracturing, smart grid technologies that improve grid efficiency and reliability, and more efficient industrial and consumer appliances that reduce system load. In aggregate, these changes have had massive and ongoing impacts across the energy industry in the US, increasing complexity of operations and affecting the business models of many of its participants.
For power utilities, IPP’s and traders, this New Age Energy Market presents a number of challenges that must be addressed to operate profitably.
Read the document online or download it from the CTRM Center New Age Energy Markets – Challenges for Utilities, IPPs and Traders
The European power and gas industry is currently going through a period of very rapid change that has potentially far reaching consequences. While change is certainly no stranger to the industry, it requires players in the industry to constantly re-evaluate their business process and technology infrastructures in order to adapt and thrive. Examples of the drivers for change include:
- Changes in the regional and national political landscape in terms of both environmental issues and the overall structure of the industry,
- A host of new regulatory and governance regulations,
- Decreased profit margins and,
- Major shifts in all aspects of technology from generation to computing,
Energy companies will need to rapidly respond to these changes and this response will certainly include a review and perhaps upgrade of their Energy Trading and Risk Management (ETRM) and related software.
Read the document online or download it from the CTRM Center Responding To Continual Energy Market Change
‘Big Data’ are two small words that are widely used to describe the massive growth in data of all forms and that hold; the promise of delivering huge potential business impact. The question is, how?
Today, and increasingly in the future, businesses are surrounded by masses of data and raw information. Some of this data is very relevant but much of it is not. Further, most of that data is unstructured in the form of email, documents, images and different types of social media, blogs, and so on. Unstructured data is notoriously difficult to access and query, it is scattered across many different locations and formats, and it requires some form of preprocessing before it can be analyzed and used. Yet, it is this unstructured type data that is primarily exploding in quantity, representing around 80 per cent of the annual growth of data and doubling in quantity every two years.
Read the document online or download it from the CTRM Center Deriving Business Value from Big Data using Sentiment analysis