Energy Traders

Energy trading companies are much more similar in their scope of operation to ESPs than Independents or IOCs. Even then, there is usually a misconception about what energy trading is all about. Assuming that it is about a group of traders frantically calling out to each other on the floor of a crowded exchange would only be marginally correct. At the most basic level, energy traders serve as a "risk bank" for the energy industry. That means they assist both energy producers and consumers manage the risk of volatile prices and delivery needs. Therefore while all the other categories of companies take oil and gas from suppliers and sell it to consumers, energy traders work on both sides of the fence.

On one side, energy traders help oil and gas sellers protect their investment with a guaranteed buyer over time. On the other side, they help buyers lock in a certain supply at a predictable price. In other words, energy traders ensure that both sellers and buyers of the energy product meet their goals in terms of commodity delivery, location, quantity or time period.

Most energy traders provide a mix of financial and physical products customised to the customer's individual needs. For a gas producer, for instance, an energy trader might commit to buying his production at a set price for a specific period of time. The energy trader would not assume this risk unless he were confident that he could find a market for (i.e., hedge) this gas. So, the trader seeks one or more willing buyers, perhaps at difficult locations and perhaps at some time in the future. To eliminate all risk, the trader would then arrange for pipeline capacity to move the gas to market and secure storage so the gas could be redelivered to the future buyer.