Over the past few decades, the commodity and energy trading and risk management (C/ETRM) landscape for the natural gas industry has been stable, dominated by a select few big players in the market – namely, ION Endur or Allegro and FIS Aligne. Their mature offerings serve a diverse customer base, historically becoming the default choice for producers, midstream entities, retail customers, and trading companies. However, recent years have ushered in a paradigm shift, challenging the traditional model and prompting questions about the long-term viability of monolithic C/ETRM solutions in the modern ETRM landscape.
Several factors contribute to the shifting dynamics: the consolidation of companies (within the industry and the tech sector), the popularity of modular ETRM systems like Molecule or Enuit's Entrade, which offer greater flexibility and adaptability to changing business needs (e.g., risk-focused), the increased focus on cybersecurity, savvier and smarter customers, and the globalization of services. These trends have challenged the traditional model and are compelling organizations to reevaluate their ETRM strategies. Furthermore, the energy transition is opening doors for investment dollars toward newer markets like LNG and renewable energy, which is growing the ETRM customer base as the traditional gas industry itself undergoes transformation.
This shift prompts questions about the traditional C/ETRM solutions – do they have a place in the modern ETRM landscape?
The answer hinges on three factors – company size, culture, and willingness to embrace newer technologies. Many natural gas companies, including those operating in the power and renewables sector, have invested heavily in their singular solutions – integrating multiple commodities like power and gas into one comprehensive ETRM system or extending the core product to force functionality like transportation optimization or granular position reporting. With the onset of the market dynamics mentioned above, larger companies have the money to spend on bolt-on applications while keeping their investment in their tried-and-true system. In comparison, smaller companies might opt to trade increasing licensing costs for more nimble, modular systems that provide more flexibility. Culturally, some companies are slower to adopt new technology and prefer to wait until it has "matured" in the marketplace, for example, API integration. Others believe quick adoption and upfront spending are the way to maximize long-term value from their ETRM implementations.
In the face of these changes, there is no doubt that traditional C/ETRMs will need to adapt to maintain their position in the market among existing and potential customers. This customer base now has alternatives that offer greater flexibility, less upfront investment, and quicker time to market. The growing trend towards automation and AI is reshaping customers' expectations of core functionality. There is an increase in complementary products on the market that provide solutions for common problem areas in natural gas operations, for example, NatGas Hub, an application that automates the complexity of pipeline scheduling and tariff calculation. Third-party data visualization tools, like Alteryx and Tableau, allow customers to rely less on standard ETRM reports, thereby influencing competitors like Entrade to invest in advanced features like API toolkits.
Most importantly, the move toward an energy transition significantly impacts the current landscape. As gas companies accelerate their investments in renewable energy sources, it is becoming obvious that the current C/ETRM offerings are behind the curve in supporting these "new" products. Many customers rely heavily on customization or good old Microsoft Excel to value and report on these assets. Increased regulation will also drive the standardization of valuation and reporting, so commodity trading and energy trading risk management vendors, whether traditional or new, will eventually be expected to include this functionality in their core competency.
Overall, the speed of adaptability to these market conditions and their long-standing brand awareness can ensure traditional vendors maintain relevance for years to come.
The evolving C/ETRM landscape also includes a notable trend toward managed services and consulting. Natural gas companies are looking to shift downstream functions like settlements, accounting, or even product support to consulting firms that offer managed services, allowing them to streamline their operations. Simultaneously, C/ETRM vendors are refocusing on the core competencies of their product and scaling down professional services teams, opting to implement with skilled partners instead. While the staying power of managed services is yet to be determined, consulting firms are investing in their personnel to support this emerging trend.
As the natural gas industry evolves and becomes more integrated, it is clear the answer to the best C/ETRM solution is not one-size-fits-all. Adaptability and flexibility are now expected by the savvier customer base, thus challenging the status quo. While facing new challenges, traditional CTRM and ETRM vendors have an established reputation over their competitors; they should seize the opportunity to adapt platforms to the evolving industry and secure their long-standing market share.
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