Ask Ed Bell about energy trading and risk management (ETRM) technology and he’ll likely bring up his days with Enron back in the early 1990s. Bell—now a principal at Houston-based technology...
Energy Technology Risk: Managing Hyper Gas Markets
Energy Trading & Risk Management: Gas price volatility has increased. Relying on antiquated scheduling systems is a recipe for disaster.
The energy industry today faces the most significant trading and risk-management technology integration issues in its history. Even as many companies sit on orphaned or grandfathered software from previous mergers and business initiatives, an expected wave of mergers will further exacerbate the current technology integration problems.
But that’s just the start of the industry’s woes. Aside from increased energy commodity volatility, some companies are using thinly supported applications and relying on manual workarounds.
That’s why energy companies eventually must replace their old systems to effectively manage business growth as well as technology changes. Obtaining a firm-wide risk profile by aggregating a summary of physical and financial metrics of disparate, local systems is an ongoing trend in the industry and a major achievement in energy company risk management.
However, given energy markets’ newfound volatility and the range of exposures that global energy firms must deal with, the reactive, reporting-oriented nature of transaction management practices is in need of serious revision. A new scheduling module can add tremendous strength and value to a company, primarily in the areas of gas logistics and risk management.
The Benefits of Modern Scheduling Systems
New scheduling modules should be unencumbered by isolated, legacy designs. And they should be risk-compatible or risk-enabled as well as straight-through-processing friendly. Designed and developed to increase productivity and eliminate integration issues, these modern systems allow organizations to greatly improve the efficiency of scheduling-related activities, including but not limited to the management and valuation of storage balances, allocation of best available volumes, and maintenance of tariff rates databases.
Such schemas offer flexible, user-friendly filtering and query capabilities for nomination management, allowing users to create bookout or back-to-back nominations, paths into and out of interconnections and pools, and movements into or out of storage facilities and park-and-loan contracts. Users should be able to manage imbalance accounts by transportation contracts (standard or zone-based), and create operational balancing agreements (OBAs) for specific meter locations. Cash-out and non-cash-out imbalance support also is important because proper imbalance positions must be monitored and displayed at all times.
These systems can also provide enhanced and expanded operations capabilities, such as detailed invoice generation and tracking, intelligent support of prior period adjustments, and the capture and management of complex transportation and storage entitlements. Transportation and storage entitlements should be designed within an open, real-time framework to provide robust interface capabilities to external systems. This framework also should maintain a strong tariff rates database, which contains comprehensive rate structures (including daily and monthly tiers, seasonal-based charges, and mileage-based rates) so that transportation and storage charges can be calculated accurately and seamlessly.
The 24-7 Energy Market
The trading benefits of a