Credit capital can be sizeable and firms do not want to post any more than is entirely necessary. Similarly if a company has an In the Money (ITM) position they want to know they have it covered to the best of their ability. With commodities exhibiting such volatility, large credit events could become an endemic feature of the global energy markets. Firms really need the expert independent support of industrial strength IMTM valuations which GEM provides.

The Center solution is based on a collaborative effort between two companies engaged in normal trading activity.  For example if Trader A had a $100mn Out of The Money(OTM) trading position, and the other counterpart asks Trader A to post for either $100mn in cash or an Letter of Credit (LC) to cover the credit risk, then Trader A could avoid doing this by entering a payment instruction into the Orbian system. The counterpart can immediately discount the $100mn for cash and receive the proceeds in 2 days. Even when Center was demonstrated to the specialist credit committee of the European Federation of Energy Traders (EFET), they made specific comment on the benefit in reducing traditional 20 or 40 day settlement risk to just 2.

Although simple in concept GEM and Center may both be sophisticated financial market proprietary mechanisms but they are available now for use by the energy industry and contribute to state of the art risk management.

"This is the energy credit risk management solution that we have been waiting for and in our discussions with the main players Center has been very well received.  Global Energy Advisory is proud of our involvement in this initiative with Orbian. To be able to offer such a solution for credit risk management in the energy industry is to me possibly one of the most important contributions an advisory firm can make." 

Aily Armour Biggs, Advisory CEO

Contact Global Energy Advisory on +44 207 692 0888