Trading industry following in the footsteps of the financial one?

July 25, 2016

Times are not straightforward for anyone right now in global business but the energy industry is arguably one which is facing most challenges.

 

Some see tighter regulations as yet another nail in the coffin after falling margins and prices but there are also those who see this regulation as simply a sign that the market is maturing.

 

Ahead of speaking at the 8th ETOT summit, we speak to OMV ETRM, Roland Bäck, to go over some industry talking points.

 

The energy trading sector has been undergoing deep changes in the past few years, with the rise of renewable energy offers, and the heavy regulatory requirements. In your opinion, what has been the main impact of these changes on the markets and on your work?

 

The main impact and changes are certainly regulatory reporting and awareness has shot up, and been on everyone’s minds ever since it has been published. There has certainly been irritation around how people went about the standards and requirements. It could have been avoided. But the industry eventually managed to deal with it. The industry is also anxious to understand and see the results that come out of these regulations rather than purely hearing about the consequences of what would happen if rules were not followed.

 

In regards to day to day work, I think when setting up new trading venues and going new markets, this is much more under consideration but we need to consider how it will affect our regulatory exposure. Also on day to day bases there are certain strategies in place to ensure we meet our regulatory requirements. This is something which was not in place prior to now.

 


“The industry is also anxious to understand and see the results that come out of these regulations rather than purely hearing about the consequences of what would happen if rules were not followed.“
 

In regards to the markets themselves, due to the decline in market prices declining and margins being evermore slim, there will be more of a consolidation effort. Some of the big companies may split and have a more focused approach to certain markets. The big example is EON splitting up Uniper – it’s a prominent industry example. It will be interesting to see how this will develop over time.

 

With regulated reporting there is now a stronger push towards stronger automation in trading entities. There’s a much bigger focus now in light of lower margins on transaction costs. I think it’s part of the maturing of the industry itself – if you compare it to the financial industry for example, much of what we are developing right now has been in place there for a long time.

 

Apart from the regulations, what do you see as the main challenges for your team now? In the next 6 months? In the coming year(s)?

 

Specifically for OMV it will be the integration of a gas trading entity (EconGas) with another group entity – which will certainly keep us buy for the next year or year and a half. But it will have a strong impact on our entire organisation -- this is specific to our company of course. If you look at the whole industry, the continuous challenging market conditions in which we operate. There is a much stronger push for market share than there was before. Previously with larger margins, we focussed more on margin generation rather than market share.

 

From a technical point of view, transaction costs are under focus, cutting costs and streamlined.

 


“I think [tougher regulations are] part of the maturing of the industry itself – if you compare it to the financial industry for example, much of what we are developing right now has been in place there for a long time.”

 

 

 

Could you briefly describe your role at OMV?

 

We have 3 trading entities within OMV, 1 in London, 2 in Vienna. London’s focus on oil products and related financial products and in Vienna two entities will be merged focussing on gas and powered Carbon. My role is to ensure that we get all the different requirements from these entities and that they are dealt with properly. We focus on steering both groups IT and external vendors on projects to ensure this all happens seamlessly. It’s an intermediate role between business and IT. 

 

Can you tell us a bit more about the session panel you will speak on?

 

“Innovation in the Energy Trading sector – Adapting to a changing landscape”

 

This is an area which is on the agenda of most of the entities – it’s helpful to have insight into how other companies are approaching it. From a strategy point of view, there are two ways of dealing with this – you can either be a fast mover, making the first step and having the advantage over your competitors. There are others who are the “smart follower” who don’t embrace new tech right away, preferring to monitor who things go.

 

We are not a fast mover, and prefer to have the tech vetted by others, and take the best advantage of matured level of innovation with regards to our IT process.

 


“There is a much stronger push for market share than there was before. Previously with larger margins, we focussed more on margin generation rather than market share.”


 

What are the technology innovation (big data, the cloud, etc.) most applicable to energy trading?

 

We can push vendors to reduce maintenance costs via cloud; however, we are dependent on the vendor’s progress. This is a big mind-set change to roll out cloud applications, so it requires a lot of education, and the organization needs to digest the changes. It’s an ongoing process.

 

Re: big data, this will help in trading optimization. It will make a big contribution, having not to rely on historical data, but more real-time information. It will be interesting to see how the industry responds to predictive analysis.

 

How would you qualify your relationship with the business teams? Are there any ongoing projects to enhance communications across these departments?

 

Fluid, openly flowing communication.

 

The operation isn’t massive, so personal contact helps. It’s different if you have people off site. Eg – with London and Vienna, we hired someone for London to have a person onsite, instead of having to liaise with Vienna. One of the major obstacles is getting people to know each other.

 

What do you think?

 

Are we ready to embrace Cloud platforms in favour of “historic data”? Is there a case to be the “smart follower” or is it inevitable that we embrace the technology as standard?

 

Let us know! Join the conversation on Linkedin and Twitter! #ETOT

 

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