Gazprom Marketing and Trading Success Story
Gazprom is one of the world's largest energy companies, with a strategic goal to become a leader among global energy companies by developing new markets, diversifying business activities and securing the reliability of supplies. Gazprom Marketing and Trading (GM&T) is a vital entity in enabling Gazprom to reach this goal by expanding beyond its primary European markets and generating additional value in global markets. GM&T plays a key role by monitoring and responding to the dynamic market environments in which Gazprom operates. GM&T uses market forecasting software and advisory reports from Ventyx to keep the company on top of market developments and analyze potential opportunities—ensuring a continued, profitable, and creditworthy business.
Gazprom Marketing and Trading (GM&T) is a subsidiary of Gazprom, one of the world's largest energy companies. Based in London, GM&T is a global business that provides customers with integrated energy solutions. Their offices in the USA, Europe and Asia offer a unique suite of products—from gas and electricity to smart metering and carbon deals.
Operating within a constantly changing global energy landscape presents numerous and unique challenges. In the last two years, European power markets have experienced unexpected changes caused by adverse weather, oil price spikes due to political instability, and entire energy markets thrown into chaos by major events such as the Fukushima nuclear disaster—and Germany's subsequent decision to retire its nuclear fleet—not to mention a global economic recession. As the market landscape shifts, companies like GM&T struggle to stay abreast of the changes and analyze their impact in a consistent and rigorous way.
In order to not only survive but thrive in this challenging environment, GM&T employs a team of experienced analysts, who are constantly monitoring energy markets, analyzing daily events, and projecting short-term impacts as well as long-term investment strategies. These analysts are tasked with providing the most accurate view into market dynamics—including price forecasting, asset valuation, and projected fuel demand for power generation—available to the many divisions of the Gazprom group. This information is used to guide the company's activities in energy trading, investments in power generation and natural gas infrastructure, and development of new opportunities in diverse global markets. Staying ahead of the competition means staying on top of these dynamically evolving markets.
In order to help the company achieve its goals, GM&T chose to employ the latest energy portfolio management solutions from Ventyx. Specifically, they selected Ventyx Market Analytics software, which provides a total solution for fundamental market modeling, including transmission and generation analysis and forecasts of prices for energy, ancillary services, and environmental markets. With Market Analytics, GM&T can better interpret the key drivers (e.g., deregulation and liberalization impacts, energy policy, environmental legislation, capacity expansion plans, etc.) that shape the markets in which it operates, and also perform fast sensitivity analysis.
The company also purchased multiple licenses for Ventyx's Planning and Risk software. Powered by the industry's leading chronological simulation engine, PROSYM, Ventyx Planning and Risk enables GM&T to analyze, report, and actively manage diverse assets such as power plants, customer loads, fuels, and contractual positions.
Furthermore, GM&T complemented the software with extensive Reference Case reports from the Ventyx Advisors consulting team. Ventyx's European Reference Case provides a detailed energy market outlook across Europe for the next 25 years. Updated on a semiannual basis, these reference cases contain Ventyx's independently formed, detailed price forecasts for key European energy markets, including wholesale electricity, carbon, natural gas, fuel oil, coal and, for the UK market, a renewable obligation certificate (ROC) price forecast. The reports give Ventyx's latest views on key market issues, market restructuring, new plant entry and retirements, transmission interconnections and emissions. GM&T also uses the data derived by Ventyx during the Reference Case process and delivered to its customers as inputs for Market Analytics as a starting point for its own analysis in the Market Analytics model.
These solutions and services are used by GM&T's analysts to help them achieve the following goals:
- Investigate investment opportunities across diverse markets
- Identify potential longer-term trading opportunities
- Project natural gas demand for the power sector in Europe
- Develop general knowledge and present views to management on how markets might evolve as rules change and market events arise
According to Structuring and Pricing Analyst Ross McVey, the transparency of the Ventyx solution was a key reason for choosing the company. "We like the fact that Ventyx was very open in a way that you could easily see how all its computations worked," McVey explained. "All the information was plainly supplied so that we could see all the inputs and how they would act. Other solutions try to hide aspects of their methodology and calculations."
"When we tried to build an internal reference case working in consultation with another provider, we never really understood all of the components that went into formulating the supply curves. Three to six months later the market economics and forward curves could have completely changed, and we could never really understand how to change the model to account for the shift in fundamentals. So, having the modeling software, the Advisors data and reports to build our internal reference cases with a much more open methodology allowed us to understand what went into the studies and gave us the ability to change our view as needed," he added.
This transparency is especially vital as GM&T runs models to analyse how prices and investment opportunities might change in the wake of market-changing announcements, such as the Fukushima nuclear disaster, which prompted announcements of nuclear retirements in Germany, and other major market shifts. "If we look at the UK market reforms, for example, we can work through the impact of what's on paper and work out how that will change fundamentals and financial outcomes in the market," McVey said. "Because the methodology and data structure is open, we can also change things within the model to see impacts on prices, future capacity mix, and whether there is actually going to be more volatility within the pricing system or a more homogeneous pricing system."
Geographic coverage was another positive for Ventyx, according to Wei Chen, asset analyst at GM&T. "Other vendors might have offered more detailed data for specific markets, but they couldn't provide the breadth of geography and the consistency across regions," Chen said. "For instance, another vendor might offer very detailed models of the UK, but not other countries or regions we need to model."
This broad coverage is important in supporting the company's growth, added McVey, as his group works to support GM&T's energy traders. "We are set up to some degree in most of the European markets, but we keep adding markets as well. So, in terms of analysis, we currently subscribe to pretty much every database that Ventyx makes for the European market. We appreciated a vendor that could scale across markets. Even if we're not trading in a particular market, we're considering future involvement. The fact that Ventyx can provide a consistent methodology both for deriving and maintaining data and forecasting markets as diverse as the UK and Turkey is a big benefit."
Chen also finds the many ease-of-use features in the Market Analytics software appealing. "I like using the interface for visualizing model output. Seeing results quickly in graphs allows for quick error spotting and reality checking results. Also, the auditing features allow us to see what changes have been made to the data to ensure that we are only including those changes that we need to include in our current run. This is a critical feature to have when you are running as many different scenarios as we do. Also, wholesale data updates are easily handled. And, it is relatively easy to update inputs to change the model from run to run."
Before GM&T kick off any large project, the team performs "back casting" analysis to ensure the mechanics of the model they've built are in line with current market realities. Since employing the Ventyx software, the team has more confidence in its models and has proven this confidence warranted by verifying the accuracy of the models via back casting.
"Due to the transparency of the Ventyx models, we have a greater understanding of how the fundamentals of the market actually work and an improved understanding of how market prices will move as fundamentals change," added McVey. "It gives us the ability to explore a lot of 'what if' scenarios and to educate and inform other people at GM&T on how certain markets are developing.
"With our users trained on the system, we can quickly and accurately assess the impact of a piece of news, or a big event, or strategic questions from other parts of GM&T—all those sorts of questions. Ventyx Market Analytics gives us a tool that can be used to answer a variety of questions regarding investment opportunities, trading opportunities, and regulatory impacts."
The team also finds the reports that are included with the Ventyx European Reference Cases highly useful for informing their own forecasts. "It's good to see an independent impression of changes in the markets, to have as much potential information and insight as possible, which leads to a more informed decision. It also makes our results more defensible."
With the help of Ventyx software and services, the team has contributed to GM&T's continued success. Despite tough market conditions, GM&T exceeded its main targets in 2010 and increased its net profit by nearly £60 million.
GM&T plans to expand its use of Ventyx Market Analytics and incorporate Ventyx's Planning and Risk solution, adding more users on the software. "Our trading business is evolving, and we're looking for new tools to quantify risk around certain positions as we change our focus from longer-term to medium-term opportunities," explained McVey.
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