Producer vs. Trading Mindset Considerations for an ETRM

Sarah Kovach Volz Written by Sarah Kovach Volz

Producer vs. Trading Mindset Considerations for an ETRM

It's essential to know "who you are" as a company and if your goals and strategies align with that throughout the organization. 

Through many of our projects, clients often mention alignment as a gas "Producer" or "Optimizer." The distinction lies in where the operational focus is attuned – flowing assured gas to customers or optimizing earnings through gas flow to customers. Ideally, producers and optimizers have the technology to support their directives, whichever direction they focus. The gas transactional business hasn't changed much over the past 20 years, and an energy trading and risk management solution still offers an impactful toolset to run the day-to-day operations surrounding the deal lifecycle. Let's look at a few considerations to keep in mind for an ETRM solution to support organizational goals.

Producer-centric focus areas for an ETRM:

Cross-Functional Efficiencies: One of the most significant benefits of adopting an ETRM system is gaining efficiencies across front, middle, and back office teams by implementing a "single source of truth." Much of the gas world is still Excel spreadsheet-driven; moving to a streamlined system to aggregate transactional data provides unmatched efficiencies in a marketing organization.

  • Capturing trades captured in an ETRM yields immediately available data for scheduling, risk reporting, and valuation.
  • Data entered post-trade becomes somewhat of a chain, showing aggregate all-in valuations along the deal's lifecycle – Trade + Price + Nomination + Confirmation + Risk + Invoice.

Data Quality & Accuracy: When relying on an ETRM as the "single source of truth," it's imperative that the data is correct and complete. One of the main benefits of an ETRM is that it provides a snapshot in time on which traders, schedulers, and risk teams can base decisions.

  • Eliminate a large portion of manual data entry and replication efforts with streamlined data. Bad data tends to fall out relatively quickly (i.e., intraday) in an ETRM rather than during month-end close. A system provides a hedge against bad data leading to potential lost revenue, misanalysis, rework, or a bogged-down month-end process to close the data error loop.
  • The devil is in the details. Proactively managing data in an ETRM that funnels through the deal lifecycle becomes a possibility – locations, price curves, differentials, and units of measure all play a significant role in the accuracy of a deal.

Invoicing Ease: A standard gas production close falls within 2-5 business days. There needs to be more time to iron out a month's worth of transactions. Insufficient data equals bad invoicing. An ETRM allows accountants to sort out the missing pieces ahead of close rather than working with a pile of bad, missing, or incomplete data to invoice off of.

  • Accounting invoice generation should be as easy as a click within a system, generating all transactional and fee-based charges for counterparties and pipelines based on the data obtained within the ETRM.

  • ETRM pre-defined templates for invoicing make generation a breeze so accountants can focus on the analysis and validation.

Optimizer-centric focus areas for an ETRM:

Robust Risk Exposure & Performance Reporting: Commercial exposure is inherent in any gas trading company, but true optimizers tend to have a larger risk appetite or take more positions in the market. An ETRM provides insight on the pre-deal phase (what's my current position, does this counterparty have sufficient open credit, what does this potential do to my overall portfolio exposure?) as well as the post-deal phase (what's my mark-to-market or PnL on this deal today, is my counterparty paying timely to reset their available credit).

  • Pre Deal: Leverage data from your ETRM to generate real-time exposure and valuation, providing support for executing deals.

  • Post Deal:
    • Performance measurements often drive bonus pool allotments or substantiate a company's strategies. Complex reporting needs are often more aligned with trade-focused organizations than producers. An ETRM can be configured to track your book structure, strategies, and optimization portfolio in a way that makes sense. 
    • Risk Reporting is only effective with good data. Using an ETRM empowers the middle office to support Trading activities effectively – promotes better MTM estimates counterparty credit standings, and tracks things like trade compliance and limits monitoring.

Optimization & Automation: A focus for these companies is improved commercial decisions, higher profitability, and greater asset use. Many bolt-on applications have become available to extend the performance of an ETRM and unleash optimization opportunities. At the same time, other functions are found natively or expanded upon an existing ETRM function.

  • Extended reporting shows real-time optionality for contracts or a distinction of what is in or out of the money based on valuations.

  • Repeatable or automated scheduling capabilities provide an unmatched advantage to logistics teams looking to path efficiently, allowing schedulers to focus more on value-added optimization opportunities than nom recording. This can be done through auto-nom and auto-pathing capabilities and implementing true automation, such as EDI connectivity to and from pipeline EBBs for nomination submission and scheduled quantity maintenance.

  • Additional company or portfolio acquisitions can easily be integrated into an existing ETRM system using data analytics and automation platforms. Using predictive analytics and an algorithmic approach to data with tools like Alteryx speeds up master data cleansing and loading processes significantly.

Financial Hedging Capabilities: Optimization-focused companies aren't the only ones putting on financial hedges. However, they tend to use more swap or optionality-based instruments to lock in deals rather than solely focusing on hedging production.

  • Capturing a rolled-up physical and financial position based on the system's best available information provides reporting to reflect the actual effect/performance of hedges against your physical book.

  • An ETRM attaches complete end-of-day prices for settling exchange positions. This process can run so a rolled-up physical/financial volumetric and MTM position is available each morning to facilitate decision-making and day-ahead strategy.

These factors are essential to the "which ETRM works for me" puzzle. The level of consideration for each helps enforce the decision-making process, forcing a company to look at its goals, roadmap, and appetite in the market.

Energy companies require adaptable and robust ETRM software solutions. Whether they identify as a "Producer" or an "Optimizer," these solutions offer an integrated system for data management and operational efficiency.

For producers, an ETRM streamlines cross-functional efficiencies, ensuring data quality and accuracy while simplifying invoicing. This facilitates a more efficient month-end close process and minimizes revenue loss due to data errors.

Optimizers benefit from ETRMs by gaining real-time insights into risk exposure and performance reporting. These tools empower them to make more informed decisions supported by high-quality data.

In this evolving energy landscape, companies must consider their needs and risk appetite when selecting the right ETRM solution to navigate the challenges and opportunities of the market's forward curves. Integration of these solutions is essential for success.

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Kurt King

Kurt King

Sarah Kovach Volz

Sarah Kovach Volz


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