Energy Trading Expertise
Energy Trading (hydrocarbons)
Categories of Trading Expertise
Throughout the process of the sale and transportation of a given hydrocarbon there are many stages, each stage in the process is often governed by a particular contract or set of terms within a broader contract relating to the specific part of the process. The areas that can give rise to litigation are:
- Shipping and transport contracts.
- Passage of Title and Risk
- Product Valuation
- Product Quality
- Credit availability
- Non performance
- Delayed performance
Noted above are some of the common areas of disputes that arise during the physical sale and purchase of hydrocarbons. However given the well-established use of derivatives in energy markets there are a further set of areas in which dispute can arise. Therefore an expert must have knowledge of:
- Hedging Strategy
- Financial Regulations
- Speculative Trading
- Exchange Traded Products
- OTC Derivatives Market
- Clearing House Mechanics
Where an expert can help
Commodity markets, particularly the oil and gas markets, have a tendency to shift dramatically when the market rebalances, as has been clearly exhibited during the past 24 months. Therefore value in energy markets is all about timing. Valuation and the establishment of quantum in disputes is a fundamental role of the expert. Non-performance or delayed performance can have knock-on effects leading to large, complicated and multifaceted claims often with many claimants. The expert’s role, within an arena of competing claims, is to take a neutral position based on their experience, to determine a reasonable valuation of the distress caused to the parties and, which party is responsible for, or could have acted to mitigate the damage.
As noted above there is a large amount of documentation that accompanies the sale of hydrocarbons and the risk mitigation strategies that supplement this. An expert with experience in the field can help to establish what the aims of the parties are, under the particular set of circumstances laid out in the documentation. As, through experience, the expert will have a conception of the “standard practice” regarding different sets of circumstance they have the ability to determine deviations from this and whether or not this deviation can be explained within the realms of reasonable working practice.
The nuances of Energy trading are varied, these cannot be expected to be within the realms of knowledge of counsel or the court. This kind of experience can only be picked up via activity in these market places. Through the knowledge of the expert, counsel can be directed to the areas where the basis for disputes lie, skirting the vast amount of material that accompanies transactions in the international energy arena.
Qualifications within this area are not as clearly defined in other areas such as finance and accounting which have specific qualifications (CFA and ACA/ACCA respectively) clearly noting the members of these industries. The energy trading sphere is penetrated by a mixture of individuals with different backgrounds therefore the qualification of expert is due to the individual’s own experience, necessary requirements would contain:
- International Experience (Trading experience in more than one regional market)
- Experience of physical and electronic transactions
- Experience of shipping and transport operations
- Risk mitigation experience
- Tax management experience
- Experience of Major Financial Institutions
- Knowledge of International Financial regulations