The energy industry is an ever-evolving landscape, with constantly shifting trends and new technologies shaping the way we produce, distribute, and consume power and gas. As we head into 2023, the energy trading industry is poised for significant changes that will have a profound impact on the way energy is bought and sold around the world.
In this article, we will explore the top power and gas trading trends that are set to dominate the industry in 2023. We will examine the drivers behind these trends, their potential impact on the industry, and real-life examples of companies that are already adapting to these changes.
Trend #1: Rise of Renewable Energy
The use of renewable energy sources is expected to increase significantly in the coming years. Solar and wind power are becoming more competitive with traditional fossil fuels, and renewable energy is projected to make up nearly 80% of the growth in global electricity generation by 2030, according to a report by the International Energy Agency (IEA). As a result, power and gas trading are experiencing significant changes as companies seek to manage their exposure to changing energy sources.
In Europe, the rapid expansion of wind and solar power has led to an increased demand for flexible power sources that can quickly ramp up or down to balance the grid. This has resulted in natural gas-fired power plants becoming an important part of the energy mix, providing a reliable source of energy when the wind isn't blowing or the sun isn't shining.
Recognising the importance of renewable energy, Shell Trading and Supply, one of the world's largest energy trading companies, is actively expanding its portfolio of low-carbon energy solutions. In 2021, the company announced plans to invest up to $2 billion per year in renewables, including wind, solar, and hydrogen. Shell is also investing in battery storage technology, which can help smooth out fluctuations in wind and solar power production.
Trend #2: Growing Importance of LNG Trading
Liquefied natural gas (LNG) is fast becoming a critical component of the world's energy mix, as countries strive to reduce their reliance on coal and oil in favour of cleaner-burning fuels. According to a report by McKinsey, the global LNG market is expected to double by 2040, largely driven by increasing demand from Europe and Asia.
The rise of LNG trading presents both opportunities and challenges for energy trading firms. While companies with access to LNG supply and shipping infrastructure stand to benefit from the surging demand for the fuel, the heightened competition and volatility in the LNG market can also pose risks and make it challenging to achieve consistent profits.
In response to this trend, Trafigura, a prominent global commodity trading firm, has been expanding its presence in the LNG market in recent years. The company has invested heavily in LNG infrastructure, including the construction of an LNG terminal in Pakistan. Furthermore, Trafigura has been actively trading LNG cargoes in the spot market, leveraging its expertise in commodity trading to capture opportunities in this rapidly evolving market.
Trend #3: Adoption of Digital Technologies
Digital technologies are revolutionising the energy trading industry, which has historically relied on manual processes and human expertise to manage complex transactions and risk. From data analytics to blockchain, advances in digital technologies have the potential to make energy trading more efficient, transparent, and accessible. Blockchain technology, for instance, can provide a secure and tamper-proof record of energy transactions, while data analytics and machine learning can help energy traders make informed decisions by analysing large amounts of data and identifying market trends.
A real-life example of this trend is Vakt Global, a blockchain-based platform for energy trading that has been gaining traction since its launch in 2018. Developed by a consortium of energy companies including BP, Shell, and Total, Vakt Global uses blockchain technology to streamline the trading process, reduce paperwork, and increase transparency. Moreover, the platform integrates with other digital technologies such as smart contracts and artificial intelligence to automate and optimise energy trading processes.
Trend #4: Increased Focus on ESG
The increasing focus on environmental, social, and governance (ESG) factors is driven by the growing concerns of investors, consumers, and regulators about climate change and sustainable business practices. This trend is having a significant impact on the energy industry, as companies are feeling the pressure to reduce their carbon footprint and shift towards cleaner sources of energy.
The influence of ESG considerations is now reaching energy trading as companies seek to manage their exposure to carbon pricing and other ESG-related risks. In this regard, energy trading companies may need to track and report on the carbon emissions associated with their energy trades to comply with their ESG reporting obligations.
One example of a company that has recognised the importance of ESG considerations is Mercuria Energy Trading, a global energy trading company. The company has taken steps to reduce its carbon footprint and invest in renewable energy and carbon capture technologies to achieve net-zero emissions by 2050. To ensure that ESG considerations are integrated into its trading activities, Mercuria has established an ESG committee to oversee the company's sustainability initiatives.
The growing importance of ESG criteria in energy trading is driving the development of new trading strategies and products that take into account carbon offsets and renewable energy credits.
The power and gas trading industry is entering a period of significant change, driven by the rise of renewable energy, the growth of LNG trading, the adoption of digital technologies, and increased focus on ESG considerations. Energy trading companies that are able to adapt to these trends and leverage new technologies and business models will be well-positioned to thrive in the evolving energy landscape.
As we move through 2023 and beyond, energy trading companies will need to continue to monitor and respond to these trends, while also staying alert to emerging opportunities and challenges in the market. By staying agile, innovative, and focused on delivering value to their customers, energy trading companies can position themselves for long-term success in the dynamic and evolving energy industry.
To see more trends predicted for 2023, make sure you watch our session from Energy Trading Week London 2022. The panel of experts; Latif Faiyaz, Head of Energy Trading & Strategy, Northern Gas and Power, Harry Huang, Managing Director Gas Trading, Uniper Global Commodities, Phil Hewitt, Director, EnAppSys, Richard Payne, Non-Executive, Cobblestone Energy and Marc Ostwald, Chief Economist & Global Strategist, ADM ISI, discussed the weight of the war on Ukraine and how prices will evolve, what winter will look like and its influence on prices, how the growing role of renewables is impacting traditional products prices, and much more. Watch the session below.
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