ETRM? Um, Yeah … It's Complicated by Patrick Reames
The phrase "Energy Trading and Risk Management" (ETRM) would seem pretty self explanatory. It means, well, the trading of energy and managing the risk associated with the trade or trades. Right? Well, yeah, but not really.
ETRM has been adopted as a label by software vendors in order to readily identify themselves and their products to a marketplace comprised of a very diverse group of companies that transact in energy commodity products. The term first appeared more than a decade ago and was actually intended to be ETTRM—Energy Trading, Transaction, and Risk Management—implying an even broader set of capabilities beyond the trading environment, reaching out to include those systems that tracked and managed transactions that were not based upon the sale or purchase of a commodity, but rather focused on the logistics involved in managing the commodity, such as pipeline nomination systems.
Commodity Crisis: Are We Simply Avoiding the Real Issue?
As I write this article, the price of crude oil has already exceeded $70/bbl for a time and other commodities such as coffee and sugar have also reached record prices. Media headlines are beginning once again to highlight "speculation" by hedge funds and other investment vehicles as, yet again, being the culprits for driving up commodity prices—particularly oil. Once again, I feel compelled to counter this media theme and try to focus attention on the real issue which seems to be largely and constantly ignored by both the media and politicians alike. That is that we (the human race) are in deep trouble simply because we are finally facing the end of the era of plentiful and cheap natural resources. The movement into a supply constrained environment will have significant social and political impacts.
The Truth about "Speculators"
Hedge funds and other investors smell profit in commodities because they have understood that where we left things midsummer 2008—with almost every commodity at or close to record prices—was not a temporary phenomenon. It was the rapid collapse of commodity prices that was and remains a temporary situation.
Paralyzed......
Returning to Europe has the advantage that one can follow soccer again and anyone that knows me will know I am a die hard Hull City (Tigers) fan. For those that don't know it, Hull got to the Premier League last season after 104 years languishing in the lower divisions and survived by the skin of their Tiger teeth. So another season of magic coming up....
Right now though is a short summer break and I have to admit that when not following commodity prices, CTRM vendors or writing IssueAlerts, I am glued to the internet watching the transfer rumors. Right now it seems that Michael Owen - The Michael Owen - might just play in our Black and Amber next season.... WOW!
The great thing is that Premier League games are on TV even in the Czech Republic meaning the odd Saturday afternoon downing wonderful Czech beer and watching the Tigers claw their way to victory.
However, my luck hasn't been good recently and I had just nicely booked some ultra cheap flights for a late summer's break when just two days later the airline - SkyEurope - announced they had filed for bankruptcy....
Oh well - back to watching commodity prices and TRM software.....
Lot's of Activity in CTRM Software Markets
There has been quite a lot of activity recently from the various vendors in the CTRM space (see Vendor announcements section in the forum).
Allegro
Allegro has been busy adding and upgrading its product suite automating the FERC reporting process and beefing up its credit capabilities with two new Allegro 8.1 modules.
Amphora
Amphora - until recently TradeCapture, has announced that Sinclair Oil has gone live on its Symphony software platform.
Triple Point
Triple Point announced several new license deals over the last few weeks including Tullow Oil which selected selected Commodity XL for Hedge Accounting™ to ensure compliance with IAS 39 disclosure and reporting for crude oil and natural gas, Bruce Power which licensed Commodity XL™ to support generation and wholesale and retail marketing operations and, Scotiabank which licensed Commodity XL™ for Power and Gas to support the launch of its commodities business.
Navita
Navita announced a partnership designed to enter Russian Power markets and it too has signed a couple of new customers according to our sources.
The CommodityPoint TRM Vendor Perceptions Study Shows TRM Software Markets Maturing
CommodityPoint has just completed its TRM Vendor Perceptions Study and issued the final study report. The study, kindly sponsored by Navita Systems AG and Solarc Inc., measured market participants'
perceptions of the vendors in the TRM space using an online survey instrument backed up by independent secondary research and analysis across a broad set of different criteria. For the first time, CommodityPoint asked for perceptions of market leadership by functionality, commodity coverage and industry segment as well as looking at unprompted and prompted vendor brand recognition.
The TRM Vendor Perception study was undertaken primarily via a web delivered survey instrument developed specifically for the study. The survey received 72 responses but 10 were eliminated due to incompleteness, invalid email addresses and contact names or they originated from a vendor in the space. The survey was conducted between mid-January and the end of April, 2009 using both HTML email pushes along with researcher calls to likely candidates.
Demographics
Credit to Allegro!
Last week I had a chance to take a briefing from Allegro regarding its new credit component - Allegro Credit 8.1. It does appear to be a fully functional and quite complete offering and it is a significant upgrade to its previous credit functionality and Allegro's efforts to add such functionality demonstrates just how important credit and counter party management has become as a requirement over the last 12-months or so.
Triple Point's European Success
In early 2007, CommodityPoint released its landmark report on European ETRM Software markets1. The study, which was based on responses received in the last quarter of 2006, seemed to suggest that Triple Point wasn't as well known in Europe as many of its traditional competitors ranking only 8th amongst study respondents (Figure 1 below) with significantly weaker prompted recognition than all of its then key rivals. To CommodityPoint, this was a surprise. After all, in North America, Triple Point was consistently ranked in the top three vendors on brand recognition.
New CommodityPoint Online Seminar
Changes in Commodity Markets: Impacts on Traders and Software
A Live Phone & Web Seminar (CPE Approved)
July 15th 10:00 am to 11:00 am (U.S. Eastern Daylight Savings Time) 4:00 pm to 5:00 pm (Central European Time)
This online seminar will utilize the results of a recent study performed by CommodityPoint that assessed the impact of changes in commodity markets on traders and the software used to support trading and risk management operations. (The study report may be purchased here).
In the first half of 2008 commodity markets were experiencing tremendous volatilities, increased trading volumes, and rapidly escalating prices; however, by the fall of 2008 much had changed. The financial crisis had spilled over into all markets and spread to all major economies, commodity prices were in free fall, and credit markets were in a virtual melt-down.
Reformed Russian Power Markets Attract TRM Vendor Interest
Russia is the fourth largest user of electricity in the world, but its regulated power markets have created a number of issues as demand growth has threatened security of supply on the back of lagging generation capacity investment. In fact, outages and power cuts during heavy usage winter months where rapidly becoming the norm as regulated power prices acted as an incentive for increased consumption and a disincentive for investment in new capacity. The solution to this problem was a plan to de-regulate the power industry.
A Brief Synopsis of Russian Electric Power De-Regulation
De-regulation, to some extent, has followed a similar pattern to other countries de-regulation efforts; unbundling the functional parts of natural monopolies into separate competitive entities and then engaging in a privatization program for many of those new competitive entities.
As ETRM Becomes CTRM Vendors Such As EKA Emerge
One of the purposes in creating CommodityPoint as a Division of UtiliPoint earlier this year was to signal our intention that we would cover the broader commodities space rather than just energy commodities. Essentially, CommodityPoint provides research and analysis services around global commodity markets and the underlying technologies that are used to support trading, transaction and risk management activities. Over the last several years, and reinforced by the results of our study into commodity markets published earlier this year1, we have discussed how commodity markets have changed in a variety of ways. Generally, those that trade commodities now trade a wider range of commodities and new relationships between commodities have emerged as older relationships to some extent have broken down.
