Minimizing commodity risks in the energy industry

24 September 2021 | BLOGS

In the energy industry, one of the most fundamental issues is pricing. When commodity prices fall, oil and gas companies are typically forced to cut back on drilling rigs and exploration. They also need to look at ways to reduce costs across the supply chain to ensure profitable operations. However, volatility in prices also means that companies have little insight into whether the selling price will cover exploration and other costs. In addition, the energy sector has also witnessed significant risks related to fraud, waste, and abuse.

Over the last year, the sector has dealt with unpredictable demands for power due to fluctuations in industrial output and remote working due to COVID-19. As per the Commodity Outlook report, oil prices fell dramatically in the early stages of COVID-19 and have only partially regained pre-pandemic price levels. In addition, factors such as geopolitical changes and growing demand for renewable energy sources lead to fluctuations in price and demand.

With global economic activity anticipated to return to pre-pandemic levels, organizations exposed to energy and other commodities are increasingly challenged by competitive economies, volatile markets, and digitalization.

As energy companies struggle with strained balance sheets, they are looking to adopt strategies and innovative solutions to integrate disparate systems, increase automation, and mitigate risk. Digital solutions and a platform approach to Energy Trading and Risk Management (ETRM) can help identify and respond to market risks and operational risks.

Minimizing commodity risks through digitalization

With supply chain risks becoming more complex, advances in big-data management, advanced analytics, machine learning, and artificial intelligence can help mitigate these risks. Organizations worldwide, including energy companies, are adopting advanced technologies and capabilities to help detect red flags early and act early. Given the pace of change, speed is becoming a pivotal imperative to grow business and protect margins.

Whether your most pressing issue involves data management, hedging strategies, and supply chain issues, a robust ETRM solution can help cut through the complexity.

Some key attributes include:

An extensible cloud-native platform 

An extensible cloud platform can help energy companies navigate fast-moving and uncertain markets with superior speed and agility and enable improved collaboration with trading partners. In addition, it can help businesses automate processes, gain better insight from data, and make better decisions for trading and risk, supply chain, and financial management.

For example, based on in-depth knowledge of commodity trading markets, the Eka platform helps clients mine data for better analytics, enabling faster decision making.

Analytics-based insights 

Data is more widely available than ever from disparate and similar sources. Used correctly, it can help energy traders make better decisions, reduce risk and increase profits. Analytics solutions based on artificial intelligence can help detect potential problem areas, while proactive analytics and simulations can help address operational issues.

Also, modern ETRM systems learn and become more intelligent over time through emerging technologies such as advanced analytics, blockchain, machine learning, and AI.

Ultimately, a modern ETRM platform can be a game-changer in energy trading, enabling businesses with agility to respond to volatile energy markets more efficiently.

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