Current trends in energy markets

1. Energy markets are becoming more global and more interconnected. As a result prices for all kinds of energy are increasingly based on market prices, not on long term or fixed rates.

2. Advances in technology are transforming the way that all markets operate, with the result that sophisticated forms of contract and innovative trading strategies are becoming increasingly common.

3. Life-of-field contracts with fixed terms are being replaced by more sophisticated and flexible contractual arrangements that encompass the use of derivatives and make knowledge and effective trading disciplines a necessity.

4. There is an ongoing revolution in the range and sophistication of risk management techniques now available to companies and their managements. The challenge for users is to know which ones work and which do not.

5. The physical and financial barriers that once separated the oil, natural gas and power markets are gradually disappearing. Best practice today can only be rooted in an understanding of these different markets and how they interconnect.

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6. With increasing complexity and globalisation has come an increase in litigation. Contracts worth hundreds of millions of dollars are now routinely disputed and settled at law. Companies without the best legal advice and market expertise are inevitably at risk

7. All market participants are faced with a huge increase in the volume of regulation, from both national and international bodies. This is particularly true of environmental regulation, which increasingly transcends national borders.

All these trends are altering the way that energy markets operate - and there are more changes to come. The ratification of the Kyoto protocol, for example, will shortly lead to the advent of International Emissions Trading in carbon dioxide equivalent (CO2e).

No fewer than 96% of total CO2 emissions in developed (so-called 'Annex 1') countries are produced by the energy sector. Yet how many companies are fully prepared for this change? The gathering pace of the European Gas and Electricity Directives and the prospect of cross-border regulation of commodity trading also threaten to change the rules of the game.

As with new trading technologies, those who do not understand what is happening - and what they can do about it - are bound to lose out. Appropriate expertise and information are necessary for competitive survival. Our job at CEAG is to provide it.