How are strategic priorities in energy markets shifting? What are the risk management implications? “Geopolitical risks have worsened and technological innovation is causing more disruption,” said Medy Agami, senior partner and vice-chairman at Ben-Roz and Associates and co-founder of the consulting firm Opimas.
He was the sole presenter of the webinar “Energy Market Strategy and Risk Playbook: How to prosper amid a wave of disruptive innovation, geopolitical uncertainty, market volatility & exponentially growing risk landscape in 2018 & beyond” sponsored by the Global Association of Risk Professionals (GARP) on August 7, 2018.
“There are five main forces acting on fundamentally shifting markets,” Agami said. He subdivided energy markets into oil & gas, coal, utilities, renewables, and “other” energy sources. “Geopolitical risks have worsened for oil & gas” whereas the coal sector is “not as concerned” with it.
Renewable sources of energy are in a “very favourable” phase right now but it is “critical to translate this into actionable competitive advantage,” according to Agami. “Innovation here is very high—it’s what’s shaping this sector.”
“We are faced with an unprecedented demand revolution and supply uncertainty,” he said. “Energy companies are moving from geocentric models to globally centralized functions,” he noted. “There’s a wave of mergers and acquisitions plus increasing pressure of performance requirements.”
He predicts a demand revolution, due to the rise of fuel-efficient transportation and development of “smart buildings” which will consume less energy. “Although forecasting firms have decreased the standing of the Clean Energy Initiative, surveys show most companies are still on track in their sustainability plans.”
“Innovation is growing within the energy sector, but companies shouldn’t have to go out on their own—we need public-private partnerships,” Agami urged.
The rapidly growing renewables sector has the most effect on the energy market structure, he said, with further shifts being caused by emerging markets. Energy companies must “create substantial operational and strategic efficiencies.”
It’s a time of “capital saturation and depletion,” he projected, “causing heightened capital discipline.” He cautioned that firms need a “laser-like focus” on risk appetite. Also, “firms with multiple projects must look carefully at capital flow.”
“Innovation will be a critical factor for determining energy firms’ ability to compete” and this led him to suggest expanding the risk framework to include innovation risk. Agami said that he’d noticed some companies adopt one new technology and try to leverage that technology throughout the firm, applying it to solve all manner of problems. “That’s not the way to go.”
Performance improvement initiatives “are always underway in energy markets,” he noted. He urged companies to understand the key performance indicators and key risk indicators within each profit center. “Risk optimization initiatives are too often neglected.”
The fifth, and final, market force that is causing energy markets to shift is that of digitalization. Digital tools can improve the efficiency and effectiveness if digitalization is done right. “Companies can link multiple systems together,” he said.
The survey of the five ways in which market forces are shifting led Agami to recommend a “playbook” of strategies for the next few years. These suggestions form the final minutes of the webinar. ª