ETRM in a Low Commodity Price Environment
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.
This new research looks at the impacts and implications of low-priced energy commodities as they relate to the key technologies used to trade, manage, value and account for those trades. These ETRM systems, though vital to the industry, will vary in their utility and value among users depending on the scope, scale and age of those systems. While not seeking to quantify these potential differences, we did want to examine the implications of the current low price environment on the value and usefulness market participants assign to those systems and understand the impacts on those technology users as this low price condition persists.
To read more please download ETRM in a Low Commodity Price Environment
Carbon Trading: If at first you don’t succeed, try, try, try again
It had been a rough day in the carbon markets for Arnulf Kohler.
But that was typical for Arnulf (known by Arn to his very few friends) who led an austere, lonely life, much like all the others in his profession. His job was filled with anxiety, he suffered from a lack sleep, and he was convinced his work environment was causing any number of other psychological disorders.
It didn’t help that most workers in Arn’s profession were routinely ostracized by society, and it was disheartening to him that many considered his trade dishonorable and frequently accused him of evil practices.
To top it all off, he’d fallen asleep again in his office, nearly burning down his place of work, and now the boss was coming by, most likely to give him the axe. This was most worrisome, as getting the axe from the local burgermeister mostly likely meant his head would literally roll.
To read more please download Carbon Trading: If at first you don’t succeed, try, try, try again
Commodity Auctions and Exchanges
Download: Commodity Auctions and Exchanges
Interview with Phil Bird Perfect Channel
ComTechAdvisory: Can you tell us a little about Perfect Channel? How did it get started and what are its objectives?
Phil Bird: I suspect, like any venture, it’s more about following a trail of crumbs than a eureka moment. I looked at auctions and what they were used for, alongside what level of sophistication, both technical and theoretical, was being brought to bear. It’s an amazing mechanism for balancing supply and demand and has broad application, it just didn’t look like anyone was harnessing its power, so hence Perfect Channel.
Broadly our objectives are;
- Bringing efficiencies to complex B2B markets by creating the right situation (competitive tension) and the right segmentation (buyer, sell and inventory matching).
- Enabling price discovery and liquidity for infrequently traded assets.
- Expanding marketplaces from local to global.
- Creating information equality.
ComTechAdvisory: What is going on in the world of commodity exchanges and how can Perfect Channel address these trends?
Phil Bird: We see commodity exchanges moving quickly to take advantage of legislative changes that affect how the OTC markets operate in terms of both mandatory clearing and transparency. In so many segments of the commodity markets, OTC trades remain favourable for various reasons; there could be fewer transactions in a fragmented market or the product is generally quite bespoke to meet the needs of the end-user. We can all cite examples where an Exchange has launched a futures contract that fails to attract the liquidity to become viable. The degree of optionality by quality, seasonality or location makes it impossible to benchmark against a ‘common’ index. What Perfect Channel offers is an e-commerce platform that fills the (very large) hinterland between homogenized cash settled commodities instruments and the OTC physical market. Exchanges come to us when they require a system that can be tailored for the physical markets. We refer to this as a complementary model.
To read more please download Commodity Auctions and Exchanges
How will the CTRM vendor landscape evolve? CTRM Thought Leaders Q&A
This last quarter, we asked our Thought Leadership panel the following questions.
ComTech: “In our recently released 2016 CTRM Vendor Perceptions Report, when our respondents were asked to name vendors of CTRM products (and without prompting), the group cited more than 85 different vendors. Additionally, in our ongoing research, we have uncovered more than 98 different vendors that produce software products covering at least some portion of the CTRM value chain.
In each of the last couple of years, ComTech has observed less than 50 new top and mid-tier customers buying CTRM solutions, with another 50 or so existing top and mid-tier customers buying additional technology components. Given the number of active vendors and this level of market activity, how do you see this potential disconnect between that market activity and the number of technology providers evolving? Will we see a consolidation of vendors via acquisition? Will we see the smaller vendors simply exit the market over time as the large vendors get larger?
Will a significant number of the small vendors be able to capture market share from the larger vendors? Or, do you feel that the current levels of activity is enough to sustain the majority of the existing technology providers both now and in the future?”
To read more please download How will the CTRM vendor landscape evolve? CTRM Thought Leaders Q&A