Commodity risk management and hedging framework of industrial portfolios
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Commodity risk management and hedging framework of industrial portfolios
- 1. 1 Commodity risk management and hedging framework of industrial portfolios 22 November 2010, London Managing Oil and Energy Risk Conference
- 2. 2 Contents • The company • Commodity risk management and hedging framework 2
- 3. 3 61 Mln clients 61 Mln clients >81.000 employees >81.000 employees Generation 1999 DistributionUpstream Gas Sales 1,5 Mln shareholders 1,5 Mln shareholders Generates and distributes value in the international energy market Assets in 23 countries Assets in 23 countries Serving local communities Serving local communities Respect for environment Respect for environment Safety on the job Safety on the job Enel Group: integrated operator in the energy sector
- 4. 4 Abroad Italy 1999 2002 2006 2009 89% 96% 8,9 52% 48% 11% 8 16 4% 7,9 55,8 94% 6% 46,5 80% 20% 50,8 42% 58% 95,3 78.510 98% 2% 76% 24% 47% 53% 71.204 58.548 81.208* EBITDA (€ bn) Installed capacity (GW) Employees +100% +88% +39% Enel transformational growth 1999-2009: from Italian incumbent to international group Source: annual report * including 52 persons classified as “Held for sale”
- 5. 5 COLOMBIA • First operator in generation (21%) • Second operator in distribution (15%) • 2,3 mln clients ARGENTINA • First operator in generation (16%) • Second operator in distribution (17%) • 2,3 mln clients CHILE • First operator in generation (37%) • First operator in distribution (32%) • 1,6 mln clients PERU • First operator in generation (30%) • Second operator in distribution (19%) • 1,2 mln clients NORTH AMERICA • Diversified presence in the main renewable technologies (hydro, geothermal, wind) IBERIA • First operator in generation (26%) • First operator in distribution (43%) • 13 mln clients (electricity and gas) ITALY • First operator in generation (26%) • First operator in distribution (84%) • 33 mln clients (electricity and gas) SLOVAKIA • First operator in generation (83%) ROMANIA • Second operator in distribution (30%) • 2,6 mln clients RUSSIA • First vertically integrated foreign operator (upstream gas, generation, supply) BRAZIL • 5,4 mln clients Market shares for distribution calculated per TWh of distributed energy CENTRAL AMERICA • Hydro and wind power plants in Costa Rica, Panama, El Salvador and Guatemala Presence 40 countries on 4 continents 61 million of clients 81.000 employees Enel: a world dimension Major areas of presence
- 6. 6 Enel: a major European operator 2009 Installed capacity GW EBITDA Mld EURO Source: institutional presentations. Installed capacity of EDF - evaluation of financial analysts 17 16 14 14 9 7 4 Enel is the second utility in Europe by installed capacity 140 95 73 73 50 44 18
- 7. 7 Contents • The company • Commodity risk management and hedging framework 7
- 8. 8 A clear identification of the nature of the activity (industrial book vs. trading book) is critical to define the most appropriate Risk Management approach • Management and mitigation of the market risk: » Without necessity of having a market view through linear hedging and transfer of all risks » With a market view/insight holding some risks or recurring to non linear instruments • Asset and contract portfolio optimization through the market » Research/ identification of flexibility sources in assets and contracts » Monetization flexibility over temporal horizon (forward/spot) • Asset support and optimization trading/hedging through market information and liquidity • Additional value creation through: » Exploitation of arbitrage opportunity » Exploitation of asymmetrical information/ market insight Risk mitigation Hedging Exploitation of the opportunity of value creation Proprietary trading • Additional value creation through: » Supply to third parties of product and services based on modelling skills, competence and critical mass » Exploitation of asymmetrical information on the market Structuring/originationAsset backed trading Risk position Decrease Stable Increase Focus of trading portfolios Focus of industrial portfolios Trading and industrial portfolios operate on the same markets, with the same instruments (derivatives contracts) and the same desks to execute deals but…. …Differ for risk metrics (PaR vs. VaR), risk limits (higher limits for industrial books), control procedures (monthly vs daily) and accounting treatment (CFH/Own Use vs MTM)
- 9. 9 Examples of industrial and trading book Trading portfoliosIndustrial portfolios • Power generation • Gas mid-Stream • Power Retail • Gas Retail • Oil • Gas • Italian Power • European Power • Structuring • Origination • Cross-commodities PaR (Profit at Risk) VaR (Profit at Risk) Risk Metrics Optimize investments (including contractual assets) and client base Generate margins from view and value added services Business rationale Focus of the presentation Medium-long term Short term Time frame
- 10. 10 Fuel Scenario Power production forecast Portfolio and Risk Management process High level view Commercial channel analysis Portfolio Analysis and identification of net exposure Market analysis and market view definition Availability Power Plant Efficiency curve FWD Market Single Buyer Enel Energia (retailer) Wholesaler OTC market FWD Market Macro Economic trend Gas Market Power Market Power Production Fuel Consumption FWD Market Coal Market Oil Market Coal Market Oil Market Spot Market Production plan Reservoir target Fuel supply Gas Detailed in the next chart
- 11. 11 Portfolio analysis and identification of net exposure Native exposure Break down in base exposure Spark FX CO2 Shipping API2 Brent Aggregation on key commodities and net exposure calculation Native exposure can be splitted in base commodities plus spark spread using indexes and market models Exposure on commodities can be aggregated on “Reference” commodities (es. Sonatrach Basket aggregated on brent) to identify net exposure Real picture of the net exposure ILLUSTRATIVE Oil Shipping Coal Gas (index) Contracted Index Contracted Fix Uncontracted CostRevenues GASOIL 0,1 Shipping Sonatrach LSFO FOB Revenues Cost Spark FX API2 Dated API4 HSFO IPE BrentLSFO CIF CO2 GASOIL 0,2 Detailed in the next page
- 12. 12 Uncontracted power is splitted in commodities and spark spread using internal models Contracted Index Contracted Fix Uncontracted Revenue Identifications of risk factors underlying uncontracted energy Can’t be hedged with derivatives in a non mature market Can be netted and hedged with the rest of the portfolio Electricity exposed to market volatility Impact of commodities Spark spread
- 13. 13 In non liquid markets more sophisticated solutions are required to identify exposures underlying power price • Due to the correlation between the price of electricity and that of fuels, electricity’s price variation can be calculated as a function of the generating plants’ fuel price variation • Hedging a volume of each fuel that is equivalent to its contribution in this formula gives a good approximation of electricity hedge Description of electricity hedge with fuels Process to obtain the basket of fuels → Power formula based on basket of fuels Power market long- term model Sale 10 TWh (power) = Power = X e/Coal ·X e/CO2 + X e/Gas· P Gas· P Coal + P CO2 Sale R MMtn of coal Sale S bcm of gas Sale T tm of CO2 Sale U tm of freight Sale V MM€ of €/$ swaps 2010 Coal forward price, PCoal 2010 CO2 forward price,, PCO2 2010 Gas forward price, PGas 2010 Freight forward price, PFreight 2010 €/$ swap forward price, P€/$ + X e/Freight · P Freight + · P €/$ X e/€/$ → Objective: Hedging 10 TWh of generation power for delivery in 2010 Steps: 1. Hourly merit-curve calculation 2. 2010 hourly power prices 3. Repeat steps 1 and 2 for a number of different forward commodity prices 4. Find the multivariable regression (Xe) between power prices and forward commodity prices across the scenarios + K ILLUSTRATIVE
- 14. 14 Exposure on detailed commodities is re- aggregated in “principal” hedgeable commodities Base commodities Main commodities Synthetic risk drivers Gasoil 0,1 FOB MED Cargoes / Gasoil 0,1 CIF MED Gasoil 0,2 CIF MED/ Gasoil 0,2 FOB MED Gasoil 0,2 FOB NWE Barges / Gasoil 50PPM CIF MED Gasoil 10PPM CIF MED / Gasoil 10PPM FOB MED … Gasoil 0,1 FOB MED Cargoes / Gasoil 0,1 CIF MED Gasoil 0,2 CIF MED/ Gasoil 0,2 FOB MED Gasoil 0,2 FOB NWE Barges / Gasoil 50PPM CIF MED Gasoil 10PPM CIF MED / Gasoil 10PPM FOB MED … HSFO 3,5% CIF NWE ARA HSFO 3,5% CIF MED / HSFO 3,5% FOB MED … HSFO 3,5% CIF NWE ARA HSFO 3,5% CIF MED / HSFO 3,5% FOB MED … API2 / New Castle / API4 Coal Basket Ct… API2 / New Castle / API4 Coal Basket Ct… Aggregation on hedgeable commodities (residual unhedgeable basis risk) Simplified picture for strategy definition Starting point from desegregation of contracts and other exposures Algerian Crude Basket Brent Dated / ICE Brent WTI Premium Unleaded 10ppm FOB … Algerian Crude Basket Brent Dated / ICE Brent WTI Premium Unleaded 10ppm FOB … LSFO 1% CIF MED / LSFO 1% CIF MED LSFO 1% CIF NWE ARA / LSFO 1% CIF NY Cargoes LSFO 1% FOB MED/… LSFO 1% CIF MED / LSFO 1% CIF MED LSFO 1% CIF NWE ARA / LSFO 1% CIF NY Cargoes LSFO 1% FOB MED/… ICE GasoilICE Gasoil HSFO 3,5% FOB NWE BargesHSFO 3,5% FOB NWE Barges API2/API4API2/API4 ICE Brent /WTI ICE Brent /WTI LSFO 1% FOB NWE CargoesLSFO 1% FOB NWE Cargoes ICE BrentICE Brent API4API4 ILLUSTRATIVE
- 15. 15 Several risk analysis are performed to support the strategy definition M5% Margin Statistical analysis of margin distribution and Profit at risk measurement – M. Euro Spark Spread Netting TotalShippingFxCO2CoalBrent equivalent DNOSAJJMAMFJDNOSAJJMAMFJDNOSAJJMAMFJ Sept 11Jun 11Mar 11Dec 10Today Analysis of the profit at risk breakdown among the key risk drivers – Profit at risk M. Euro Forward looking calculation exposrue evolution – Brent equivalent exposure MBBL Y-2 Y-1 Y Forward looking calculation of Profit at risk evolution – Profit at risk M. Euro
- 16. 16 Hedging deals flows management and trading integration Enel Produzione Enel Trade - Gas Enel Energia Enel Green Power Active portfolio management ad support in hedging strategy definition On request support for portfolio analysis Enel Trade–Risk & Trading Aggregation of hedging mandates and prop trading deals for a coordinated and centralized execution FX Shipping API4 API2 GO FO BTZ ATZ Brent Market Endesa Centralized execution
Notes de l'éditeur
- Per quanto concerne l’area del nostro business, il Gruppo Enel agisce come operatore integrato nei settori della produzione, distribuzione e vendita di energia elettrica e di gas, svolge attività captive nel settore dell’ingegneria e dell’innovazione ed ha di recente esteso la propria presenza anche nel settore up-stream del gas e carbone per massimizzare – mediante una integrazione verticale – la sicurezza, la flessibilità e la competitività degli approvvigionamenti di materie prime. Enel genera e distribuisce valore nel mercato internazionale dell’energia, a vantaggio delle esigenze dei clienti, impiegati, dell’investimento degli azionisti, delle aspettative di tutti quelli che lavorano con noi e della competitività dei paesi in cui siamo presenti. Enel opera al servizio delle comunità, nel rispetto dell’ambiente e della sicurezza delle persone. In tutti i paesi di presenza il nostro obiettivo etico rimane quello di mantenere il comportamento di buoni cittadini del mondo al servizio di tutti i clienti e di tutti coloro che hanno rapporti con noi.
- Dal 1999 il Gruppo Enel ha quasi raddoppiato l’EBITDA e ha aumentato la capacità installata del 69%. [EBITDA 2009: 16 Mld € di cui 8,4 Mld (52%) Italia 7,6 Mld (48%) Estero] Un cambiamento che risiede non solo nei numeri assoluti, ma anche nella ripartizione tra business in Italia e all’estero. Oggi infatti più della metà dell’EBITDA del gruppo è generato fuori dai confini nazionali, più della metà della capacità installata è all’estero e più della metà dei dipendenti è straniera. Passiamo ora ad esaminare i principali dati finanziari che hanno caratterizzato le tappe dell’evoluzione del gruppo.
- Il Gruppo è composto attualmente da circa 700 società ed è presente in 23 Paesi del mondo (in Europa, Nord e Sud America). In moltri altri paesi svolge anche attività di trading di energia e sourcing di combustibili. La svolta più significativa nell’espansione internazionale del Gruppo si è avuta con l’acquisizione di Endesa, la più grande impresa elettrica spagnola, holding a sua volta di un vasto gruppo di società, con una larga presenza in diversi Paesi del Sud America. Oltre all’operazione Endesa, ulteriori importanti operazioni di acquisizione sono state effettuate dall’Enel negli ultimi anni, in altri Paesi europei (Russia, Slovacchia, Romania, ecc.) e nelle Americhe (USA e vari Paesi dell’America Latina). Di fatto quindi l’Enel si presenta attualmente come un gruppo che, nato da una grande realtà aziendale italiana, ha esteso nel giro di pochi anni il suo raggio di azione, incorporando diverse aziende che operano in vari Paesi del mondo e crescendo con investimenti organici. [EBITDA Gruppo Enel dati provvisori 2009: 16 Mld € di cui Italia: 8,4 Mld € (52%), Estero: 7,6 Mld € (48%)] In una struttura organizzativa che presenta una configurazione così complessa in termini geografici ed operativi, l’esigenza prioritaria è quella di individuare un giusto equilibrio tra il ruolo di direzione e coordinamento che deve essere svolto con autorevolezza e determinazione da parte della Capogruppo e un’adeguata autonomia gestionale ed operativa da riconoscere alle società controllate per lo svolgimento dei loro piani. Questo equilibrio, che è efficacemente riassunto nel titolo di questo mio intervento (“come tenere saldo il timore del comando senza …. espropriare le controllate delle autonomie gestionali”), è di fondamentale importanza in un sistema di governance da applicare nell’ambito di un gruppo, in quanto un accentramento eccessivo delle competenze decisorie in capo alla Holding può creare un sistema troppo dirigistico, un appiattimento di ruoli e una mancanza di iniziativa da parte delle strutture sottostanti; mentre un’autonomia eccessivamente spinta può rischiare di comportare una mancanza di coordinamento, una carenza di controlli, una sostanziale ingovernabilità delle controllate stesse.