Energy Trading
Rebuilding the Business
Chris Conway
UH GEMI Conference
January 20, 2005
Rebuilding the Business
 What does energy trading look like inside an integrated
major company?
 What are some notable trends in the evolving energy
markets?
 How might these trends influence the trading business?
An integrated company perspective.
Asset Operations
Trading Unit
• Upstream and Downstream produce and
manufacture, assets are the primary focus.
• The trading unit does not operate assets.
Its’ assets are people, information and
commercial contracts.
• Uptime, yields, lifting costs, are typical
performance indicators.
• There is no trading production line.
• Capital programs are planned, estimated,
scheduled and reviewed.
• Assets offer option value. Capturing
option value requires factual information
and people willing to act quickly.
• Processes and schedules stretch out
over fairly long time periods.
• Trading work process cycles are typically
short in duration.
• Decisions are typically vetted through
accountability hierarchies.
• To act quickly, decision hierarchies are
flattened.
• Decision impacts generally evolve over
time.
• Decision impacts are recorded daily and
accountability is clear.
• Individuals tend to work within team
structures.
• Individuals are more likely to be
independent contributors.
Different environments . . . Alignment is critical.
Expectations
 Sell produced oil and gas at favorable market values.
 Avoid shut-in production.
• Deliver crude oil supplies and refined products at the lowest possible cost.
• Manage varying oil and gas qualities and producing unit logistics issues.
• Encourage and take advantage of refinery feedstock flexibility.
• Distribute finished products to a highly decentralized wholesale network.
• Deal with an increasing number of finished product specifications.
• Understand and communicate fair market values.
Clear on the surface . . . Complicated below.
Business Model
 To
what degree do we participate in price discovery?
• What is our risk tolerance?
• Who will bear the results of our risk-taking activities?
• How much capital are we willing to commit to trading?
• How much are we willing to invest to develop and maintain a
measurement model?
• What is the value for engaging third party transactions unrelated to
the assets operations?
It makes money . . . May not be enough.
Implications
 Some may choose to minimize trading unit costs or outsource.
• Others may invest in trading infrastructure.
• Enhanced ability to manage inherent risks.
• May also share some risks of the customers business.
• Engaging in fixed price transactions and becoming both a buyer and a
seller, supporting liquidity.
• Participating in transport and storage markets, understanding current and
future constraints.
• Extending market knowledge to influence investment decisions and the
structure of contractual relationships.
Direct benefits important . . . Indirect may be greater.
Trends
• The environment in which people operate is changing.
• The possibility we have entered a period of sustained higher commodity
price levels.
• Rapid energy demand growth in Asia.
• Consolidation of large integrateds and independents.
• Major Chinese and Russian companies stepping into the global trading
marketplace.
• Arrival of LNG to North America.
• Continued movement towards cleaner fuels.
• Restructuring of the North American power market.
One list . . . What’s your market view?
Conclusion
• If you enjoy change, energy trading is one of the places to be.
• Foresee change, or embrace it early.
• Which changes are lasting, and which ones not?
• Being a follower does not routinely lead to acceptable results.
If you don’t make dust . . . You eat dust!