Future of energy – where energy transition and digital transformation converge

 

Future of Energy is evolving at a rapid pace – where soaring global energy demand, increased volatility as also energy transition and digital transformation converge.

In that context, I attended and spoke at the Energy Risk USA event on May 11, 2023, the annual gathering of experts across the energy industry, involved in trading, supply and risk management of energy commodities. It spans all the commodities – oil, gas, refined products, natural gas, LNG, and power, in all forms including renewables.

The summit had great relevant topics, thoughtfully designed. There was top notch engaging discussion and presentation and such a fantastic interaction with a diverse group of experts on the future of energy, from energy transition to digital transformation.

 

Key highlights across sessions:

·       Energy demand - With more gadgets, increased use of technology, energy demand is supposed to rise, across the globe.

·       Market prices/volatility – Expect higher volatility as economic/political factors, supply constraints, interconnected global markets, energy transition mingle.

·       Credit Risk/Margin – As a result of increased volatility, there may be requirement for higher margin and collateral. Credit agency and regulators will have to work hand in hand as the energy future evolves and need to invest in new energy projects rises.

·       Environment/ Clean energy – There is significant focus on environment and clean energy. That is driving not only interest in renewables like wind, solar, hydrogen, biodiesel and geothermal but also in cleaner spectrum of carbon fuel – natural gas and LNG.

o   There are significant constraints in energy storage to handle hours when renewable will not be prepared to produce power. This will create more volatility even though battery storage is somewhat of a hedge.

·       Balancing between various forms of energy – In order to meet increased demand for electricity specially when renewable energy is not available, it is critical to balance traditional sources of energy with the renewable sources.

·       Investment in new energy – New energy investment, calculating Risk Adjusted Rate of Return, managing capital need to be sorted out. New models handling future investment specially in renewables must be developed.

·       Modelling and Quantitative tools - There will be need for sophisticated modelling to properly track and quantify risk and margin. It will be needed to forecast price, demand, supply and properly address demand in the most efficient way. There will be need to manage risk, margin and working capital as volatility increases.

·       Data and Analytics – There will be need for leveraging more and diverse types of data, running analytics and help make better decision. Usage of cloud technology and advanced technology will be a key for energy future.

·       Artificial Intelligence, Machine Learning, and tools like ChatGPT

o   As world moves to an integrated supply chain, with more volatility related to rising energy demands and different supply curves based on energy source, more logistical constraint, there will be increased demand to leverage advanced technology to solve problems, make better decisions. AI and ML will be used to handle and model huge amount of data, leveraging AI running sophisticated models, using Machine Learning to tweak models and help better outputs.

o   In addition to using structured data and numbers, it was important to extract value from unstructured data, existing information in the public domain. ChatGPT can be leveraged as a natural language processing tool to mine huge amount of public data, even unstructured data like social media comments to help model the future and do analytics. E.g., People talking about big events, incoming demand in Asia can be mined to help develop forecast for demand. Again, this will be in addition to the quantitative models and predictive analytics.

·       Domain knowledge and Digital tools – It was universally clear that it was not enough to just deploy the smartest and coolest technology. Domain knowledge, understanding the business problem to pick the right model and right tool was critical.

o   It means there has to be close collaboration between business and technology; importance to have data scientists with domain knowledge, business experts with access to digital tools.

Energy Risk USA provided the platform for deep discussion around not only energy, environment, market factors but also how to automate, digitalize the future as resources become scare, logistics become complex and demand soars. It is an exciting time to plan for the smart and green energy future.