Energy trading risk management systems are hailed as the best way to streamline natural gas business operations.
The name denotes the systems are focused on improving operations in trading and risk, but what’s in it for other business stakeholders who support the transaction lifecycle? We will highlight the top advantages our team has observed clients attain by adopting an ETRM system across front, middle, and back offices.
Front Office – Informed Decision Advantage:
Natural gas traders benefit from an ETRM system that provides real-time information from market data, locational inference, transportation contract usage or availability, and accurate volumetric balances at pools, inventory, and trade locations. The access to up-to-date data provides endless opportunities for instantaneous deal and contract valuation, enabling traders to make more informed decisions to manage their positions, exposures, and portfolios. Further analytics can be layered on to enhance optimization strategies and activity surrounding trades and assets within a trader’s gas portfolio. For example, an ETRM often provides the capability to run a scenario and “what if” analysis, providing a trader insight on the best decisions for their respective portfolio in the real-time current market conditions (e.g., storage plays, locational spread, capacity release). Introducing the best available data at a trader’s fingertips provides an opportunity to act proactively in markets and increase the bottom line.
While under more scrutiny to keep volumes balanced throughout ID cycle timelines with an ETRM, gas logistics teams benefit in position balancing and on-the-fly transport valuation. Deals matched with nominations and associated transport rates accurately evaluate each pathed nomination. Added benefits are achieved by integrating an ETRM with interstate pipelines to automate tariff updates directly to the source system, as provided by pipeline EBBs. Integration can also capture scheduled quantity data from the EBBs and submit the changes directly back to the nominations caught in the ETRM, creating significant time savings.
Middle Office – Enablement and Compliance Advantage:
Risk and credit teams attain significant advantages with the best available data capture, leveraging systemic capabilities to identify, measure, and mitigate trading risks in real-time. Most ETRMs offer robust quantitative services, rapidly combining transaction valuation details to provide insight into the composite positional and monetary view of open exposures across a physical and financial trade portfolio. ETRMs often provide out-of-the-box functionality to generate mark-to-market (MTM) reports, profit and loss (PnL) reports, value at risk (VaR) reports, credit exposure reports, portfolio stress tests, and modeling analysis. With these tools at the middle office’s disposal, the team can enable the front office to conduct quantitative and qualitative evaluations of the trading portfolio.
Compliance and Regulatory managers can obtain reporting tools to help ensure that all marketing and trading activities align with internal policies around trader limits (tenor, position, VaR), delegation of authority (DOA), trader checkout completion, and backdated or wash trade entry.
Back Office – Proactive Advantage:
Settlement and accounting teams directly benefit from the data-driven through the transaction lifecycle, all residing in a single system. Notional transaction values, transport charges, and associated costs are directly maintained within an ETRM and attached to respective deals. As more data is captured and applied in the system, the back office can proactively review the data, identifying errors before month end and mirroring the gas day balancing throughout the month. The actualization, reconciliation, and invoice generation processes become more automated, lightening the number of manual touches required within a system.
Overall, there are no losers when implementing an integrated system for ETRM. The organization benefits from increased efficiencies, pricing transparency, access to data, informed & improved decision-making power, and compliance assurance. When implemented correctly, an ETRM provides a comprehensive and seamless solution for non-energy and energy assets that connects front, middle, and back offices for better execution.
