May 17, 2020

Understanding and Managing Oil Market Volatility in an Era of Increasing Uncertainty

5 min
Managing oil volatility induced risks
Click here to view this article in June's issue of Energy Digital Written by Lauren LaFronz, Triple Point Technology Oil is a very popular commodi...

Click here to view this article in June's issue of Energy Digital


Written by Lauren LaFronz, Triple Point Technology

Oil is a very popular commodity due to its high consumption levels and versatility. According to the International Energy Agency, close to 90 million barrels are used globally every day. This makes it the most widely traded commodity, both physically and financially, around the world. 1

However, high consumption and versatility aren’t the only things for which oil is well known. Mention the oil markets, and it’s a good bet that volatility and its cousin's instability and unpredictability are among the first things that come to mind for many people.

The oil market is highly complex, with multiple fluctuating supply and demand side variables including geopolitical issues, new oil sources, and speculative trading that contribute to oil’s extreme volatility. This volatility significantly increases risk exposure and makes price clarity elusive for producers, refiners, merchants and traders.

Geopolitical Risk

Supply disruptions due to geo-political issues have become relatively frequent events, causing significant price spikes as the delicate supply-demand balance is thrown off kilter. Issues in the Middle East in particular have a large influence on oil prices because of the region’s massive reserves. Political issues in other important supply regions, such as Latin America and Russia, are creating additional market uncertainty as well.

It is an understatement to say that the uncertainty and volatility caused by geopolitical issues make for a very risky market, and renders any kind of business planning a complex and seemingly insurmountable task for oil market participants.

Shale Oil

Shale oil has enormous potential, with U.S. reserves alone totaling an astounding 1.5 trillion barrels of oil –more than five times the stated reserves of Saudi Arabia.2 However, they currently remain largely untouched, because extracting oil from shale is expensive and complex. That is, for now.

New technologies are being developed that could potentially revolutionize shale oil production by making it cheaper and easier to extract. Should one or more of these technologies become commercially viable, shale oil would become an abundant fuel source. However, there is much debate in the industry about if and when feasible extraction technologies will come to fruition. The testing required to explore and perfect these technologies is extremely expensive, making it an endeavor largely limited to companies with exceptionally deep pockets.

These technical uncertainties further exacerbate the murkiness surrounding the world’s future oil supply, and underscore the importance of having access to advanced analytics that enable accurate and informed decisions.

Demand Side Ambiguity

While geopolitical developments and technical uncertainties create significant doubt as to the levels of future crude supply, forecasting market demand is no less challenging. All major centers of consumption have been affected to some degree by the global economic slowdown. While overall consumption continues to grow, according to the IEA, the rate of growth in global crude demand fell from an annualized growth rate of 3.2 percent in 2010 to 0.9 percent in 2012. But the future of oil consumption is not relegated to the picture of gloom and doom painted by these numbers. There are signs that the economy is starting to turn around. According to the International Monetary Fund, global economic conditions improved modestly in the third quarter of 2012, primarily due to increased activity in emerging market economies and the U.S., and economic growth is projected to rise throughout 2013.

The Speculators Effect

Despite the global downturn, trading in physical crude and derivative instruments has been robust over the past few years. The oil futures market trades more than one billion barrels of oil each day. The entire world produces only around 85 million a barrels a day – meaning that more than 90 percent of trading involves speculators, who never actually take physical possession of oil. 3 These speculators enter and exit the market quickly, basing trading decisions solely on price momentum and recent volatility.

There is no absolute evidence to show that this activity has a sustained and quantifiable effect on the market, but many industry observers believe that volatility is being exacerbated through high-volume trading by speculators (the “speculators effect”) – particularly during periods with a high level of market uncertainty.

Solutions for an Unstable Market

The potential for volumetric shocks on both the supply and demand side of the crude market combined with the potential for increased volatility due to the “speculators effect” leaves companies increasingly exposed to risk. In order to effectively and efficiently manage this exposure, market participants must have sophisticated, end-to-end Commodity Management solutions that provide both the metrics required to measure exposure and the insights needed to successfully manage it. These sophisticated solutions enable crude market participants to:

  • Mitigate enterprise risk

  • React quickly

  • Maximize profitability

  • Minimize supply chain risk

Commodity Management solutions are most commonly available in traditional “local” or desktop installations; however, they are increasingly being delivered through mobile platforms and as ‘in-cloud’ solutions, giving users multiple deployment options.

The New Risk Management Imperative

The oil business was built on the reputation of mavericks and risk-takers. But in today’s climate, the risks are so much greater and the consequences of poor decision-making are far more serious. Unprecedented volatility due to a combination of geopolitical issues, changing demand, speculators, and a myriad of other factors make it exceptionally difficult to run a profitable business these days.

An inability to manage this volatility-induced risk has an overwhelmingly negative impact on the bottom line. For many businesses it will be fatal. Mitigating these risks with the use of an advanced Commodity Management solution is imperative for any firm that plans on a long-term future and takes its shareholders’ interests seriously.

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Jun 12, 2021

Why Transmission & Distribution Utilities Need Digital Twins

Petri Rauhakallio
6 min
Petri Rauhakallio at Sharper Shape outlines the Digital Twins benefits for energy transmission and distribution utilities

As with any new technology, Digital twins can create as many questions as answers. There can be a natural resistance, especially among senior utility executives who are used to the old ways and need a compelling case to invest in new ones. 

So is digital twin just a fancy name for modelling? And why do many senior leaders and engineers at power transmission & distribution (T&D) companies have a gnawing feeling they should have one? Ultimately it comes down to one key question: is this a trend worth our time and money?

The short answer is yes, if approached intelligently and accounting for utilities’ specific needs. This is no case of runaway hype or an overwrought name for an underwhelming development – digital twin technology can be genuinely transformational if done right. So here are six reasons why in five years no T&D utility will want to be without a digital twin. 

1. Smarter Asset Planning

A digital twin is a real-time digital counterpart of a utility’s real-world grid. A proper digital twin – and not just a static 3D model of some adjacent assets – represents the grid in as much detail as possible, is updated in real-time and can be used to model ‘what if’ scenarios to gauge the effects in real life. It is the repository in which to collect and index all network data, from images, to 3D pointclouds, to past reports and analyses.

With that in mind, an obvious use-case for a digital twin is planning upgrades and expansions. For example, if a developer wants to connect a major solar generation asset, what effect might that have on the grid assets, and will they need upgrading or reinforcement? A seasoned engineer can offer an educated prediction if they are familiar with the local assets, their age and their condition – but with a digital twin they can simply model the scenario on the digital twin and find out.

The decision is more likely to be the right one, the utility is less likely to be blindsided by unforeseen complications, and less time and money need be spent visiting the site and validating information.

As the energy transition accelerates, both transmission and distribution (T&D) utilities will receive more connection requests for anything from solar parks to electric vehicle charging infrastructure, to heat pumps and batteries – and all this on top of normal grid upgrade programs. A well-constructed digital twin may come to be an essential tool to keep up with the pace of change.

2. Improved Inspection and Maintenance

Utilities spend enormous amounts of time and money on asset inspection and maintenance – they have to in order to meet their operational and safety responsibilities. In order to make the task more manageable, most utilities try to prioritise the most critical or fragile parts of the network for inspection, based on past inspection data and engineers’ experience. Many are investigating how to better collect, store and analyze data in order to hone this process, with the ultimate goal of predicting where inspections and maintenance are going to be needed before problems arise.  

The digital twin is the platform that contextualises this information. Data is tagged to assets in the model, analytics and AI algorithms are applied and suggested interventions are automatically flagged to the human user, who can understand what and where the problem is thanks to the twin. As new data is collected over time, the process only becomes more effective.

3. More Efficient Vegetation Management

Utilities – especially transmission utilities in areas of high wildfire-risk – are in a constant struggle with nature to keep vegetation in-check that surrounds power lines and other assets. Failure risks outages, damage to assets and even a fire threat. A comprehensive digital twin won’t just incorporate the grid assets – a network of powerlines and pylons isolated on an otherwise blank screen – but the immediate surroundings too. This means local houses, roads, waterways and trees. 

If the twin is enriched with vegetation data on factors such as the species, growth rate and health of a tree, then the utility can use it to assess the risk from any given twig or branch neighbouring one of its assets, and prioritise and dispatch vegetation management crews accordingly. 

And with expansion planning, inspection and maintenance, the value here is less labor-intensive and more cost-effective decision making and planning – essential in an industry of tight margins and constrained resources. What’s more, the value only rises over time as feedback allows the utility to finesse the program.

4. Automated powerline inspection

Remember though, that to be maximally useful, a digital twin must be kept up to date. A larger utility might blanche at the resources required to not just to map and inspect the network once in order to build the twin, but update that twin at regular intervals.

However, digital twins are also an enabling technology for another technological step-change – automated powerline inspection.

Imagine a fleet of sensor-equipped drones empowered to fly the lines almost constantly, returning (automatically) only to recharge their batteries. Not only would such a set-up be far cheaper to operate than a comparable fleet of human inspectors, it could provide far more detail at far more regular intervals, facilitating all the above benefits of better planning, inspection, maintenance and vegetation management. Human inspectors could be reserved for non-routine interventions that really require their hard-earned expertise.

In this scenario, the digital twin provides he ‘map’ by which the drone can plan a route and navigate itself, in conjunction with its sensors. 

5. Improved Emergency Modelling and Faster Response

If the worst happens and emergency strikes, such as a wildfire or natural disaster, digital twins can again prove invaluable. The intricate, detailed understanding of the grid, assets and its surroundings that a digital twin gives is an element of order in a chaotic situation, and can guide the utility and emergency services alike in mounting an informed response.

And once again, the digital twin’s facility for ‘what-if’ scenario testing is especially useful for emergency preparedness. If a hurricane strikes at point X, what will be the effect on assets at point Y? If a downed pylon sparks a fire at point A, what residences are nearby and what does an evacuation plan look like?

6. Easier accommodation of external stakeholders

Finally, a digital twin can make lighter work of engaging with external stakeholders. The world doesn’t stand still, and a once blissfully-isolated powerline may suddenly find itself adjacent to a building site for a new building or road. 

As well as planning for connection (see point 1), a digital twin takes the pain out of those processes that require interfacing with external stakeholders, such as maintenance contractors, arborists, trimming crews or local government agencies – the digital twin breaks down the silos between these groups and allows them to work from a single version of the truth – in future it could even be used as part of the bid process for contractors.

These six reasons for why digital twins will be indispensable to power T&D utilities are only the tip of the iceberg; the possibilities are endless given the constant advancement of data collection an analysis technology. No doubt these will invite even more questions – and we relish the challenge of answering them. 


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