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Between January 2022 and April 2023, the period considered for the 2023 Energy Risk Awards, the commodities complex experienced some of the most extreme conditions market participants have ever faced.
Russia’s invasion of Ukraine, rising inflation and soaring interest rates wrought havoc on the business plans of many commodity market participants. Age-old trade routes and supply chains were up-ended, counterparty credit risk rocketed, and trade and project finance became unnervingly expensive. At the same time, while high energy prices triggered a need for producers and consumers to revisit hedging programmes, sky-high volatility caused eye-watering increases in initial and variation margin calls.
In the first five months of 2022, the price of Brent crude rose some 50% from $79 a barrel (/bbl) at the start of January to $120/bbl at the start of June, before slipping back to below $75/bbl in March 2023. However, the gas and power markets were where the real volatility was.
On March 2, 2022, the price of Ice’s TTF natural gas contract rose to €150 a megawatt hour (MWh) having been below €40/MWh for most of 2021. But the worst was yet to come as prices rose steadily from mid-June, spiking to €343/MWh on August 26, just days before Russia choked off gas supplies to Europe by shutting the Nord Stream 1 pipeline.
Meanwhile, average day-ahead spot prices in Europe rose over 735% from around €65/MWh in February 2022 to €543/MWh in August 2022.
As a result, clearing houses increased initial and variation margin requirements significantly throughout much of the year. In one example, reported in regulatory disclosures, a single clearing member of Ice Clear Europe triggered a $7.8 billion variation margin call in the third quarter of 2022, the largest on record for the clearing member. It was some 44% larger than the clearing member’s previous highest call, which occurred in Q4 2021.
Margin calls in the millions and even billions of dollars were not uncommon throughout the year and left many utilities and corporate hedgers struggling to find the cash at short notice.
This is where many of our winners came in, extending credit to corporates who needed it to meet margin calls and to increase hedging activity. Intesa Sanpaolo, Macquarie, Tramontana Asset Management, Marex, Credit Suisse and Societe Generale all stood out in this field.
Another important function that many of our winners fulfilled was providing much-needed liquidity to help ensure the markets continued to function at this critical time. Here, joining the firms above is Grey Epoch, the winner of our inaugural Liquidity provider of the year award for its work in the EU and UK carbon options markets. Engie Global Markets also stands out here for its continuing presence and innovation across a huge section of energy markets.
Another important function that many of our winners fulfilled was providing much-needed liquidity to help ensure the markets continued to function at this critical time. Here, joining the firms above is Grey Epoch, the winner of our inaugural Liquidity provider of the year award for its work in the EU and UK carbon options markets. Engie Global Markets also stands out here for its continuing presence and innovation across a huge section of energy markets.
Quality hedging advice was very much required throughout the year, and here, Aegis Hedging Advisory, winner of the 2023 Hedging advisory firm of the year, delivered in abundance through innovative thinking and expertise that saved its clients many millions of dollars.
With commodities markets at the intersection of many trends including increased geopolitical risk, long-term climate risk and advancing technology, this year’s Energy Risk Awards includes a ‘One to watch’ category. For 2023, this award goes to three firms that have created an innovative offering that’s particularly pertinent to the way the energy markets are developing. This year’s ‘Ones to watch’ are: Orchestrade for its newly developed and potentially disruptive commodity trading and risk management software system; Xpansiv for its carbon credits trading platform; and Cassini for its margin calculator.
While last year is probably a year that not many market participants would want to repeat, the challenges nevertheless inspired innovative thinking and new approaches to risk management. Many firms were forced to recalibrate long-standing models and look at new technologies and even artificial intelligence for augmenting their risk management. Taken together, our winners showcase some of the very best in innovative thinking that will shape the energy markets for years to come.
Derivatives house of the year: Intesa Sanpaolo
Climate risk manager of the year: ENGIE
Liquidity provider of the year: Grey Epoch
Oil and products house of the year: Macquarie
Natural gas/LNG house of the year: ENGIE
Electricity house of the year: Macquarie
Emissions house of the year: Tramontana Asset Man
Environmental products house: Anew Climate
Precious metals house of the year: Credit Suisse
Base metals house of the year: Marex
Commodity and energy finance house: Societe Generale
Commodity broker of the year: Marex
Commodity exchange of the year: Nodal Exchange
Commodities research house of the year: Macquarie
Climate risk advisory firm of the year: Ortec Finance
Hedging advisory firm of the year: AEGIS Hedging
Technology advisory firm of the year: KWA Analytics
CTRM software house of the year: Mobius Risk Group
Technology firm/product of the year: Skylight IPV
Data and analytics firm of the year: QuantCube Technology
OTC trading platform of the year: BNP Paribas
Deal of the year: ENGIE
Innovation of the year: Windward
Newcomer of the year: Stag Securities
One to watch: Orchestrade
One to watch: Cassini Systems
One to watch: Xpansiv
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