Enterprise Risk Management - Energy Trading

The case for an integrated risk management approach for physical energy trading to cover all risks: company liquidity, operational, counterparty performance and credit, FOREX, market and price, demand forecasting, and regulatory. Decision makers of all levels need to be cognizant of the inter dependencies and make decisions with an end-to-end perspective. For each trading risk, this study attempts to analyze in some detail the specific risks, their measurement methods, and risk management tools by gathering insights from various risk management literature and existing practices in oil companies. Next in proposing an integrated approach to energy trading management, it borrows insights from the Enterprise Risk Management (ERM) literature and adapted them for energy trading. With that, it explores the need for top management understanding and support, end-to-end risk assessment, and other factors, to successfully enable ERM in energy trading.