Risk management stakes raised by Libya and Japan

An international energy broker is warning UK businesses of the increased market volatility caused by political turmoil in Libya and the Japanese earthquake. Experts at Bergen Energi UK say the […]

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By Kelvin Ross

An international energy broker is warning UK businesses of the increased market volatility caused by political turmoil in Libya and the Japanese earthquake.

Experts at Bergen Energi UK say the energy market has been in turmoil and is advising companies that the need for acute energy risk management is greater than ever.

Key account manager Simon Firth said: “We must examine the economic implications of these geopolitical issues. It will take years for Japan to recover from the disaster and we could be witnessing the impact on energy markets for some time, too.

“The majority of markets rose directly after the Japan disaster – we saw great price leaps in the coal market – but in contrast the crude oil market fell substantially as a result of Japan’s reduced demand.

“By the end of that week it had gained strength again, predominantly due to the Libyan situation and tensions in the Middle East, which are continuing to spread to new countries.”

He said this impact on the markets was “a clear example of how world events, both in isolation and combination, have a huge impact on the energy decisions businesses must make”.

“Uncertainty remains in the market. The big question in the wake of the Japanese tragedy is the extent that gas or coal will be used to fuel the country’s consumption in the future to replace lost nuclear capacity.

“Exchange rates have so far favoured the Euro after heightened expectations that the central bank in Europe will need to raise interest rates. In addition, we saw central banks intervening to support the Yen in the aftermath of the quake which has introduced greater uncertainty.

“The sharpest gain in the fuel markets has been in gas. Japan is typically an importer of LNG and market sentiment reflected this with significant price rises.

“In line with other fuels, carbon gained strength with the expectation that Japanese nuclear capacity will have to be replaced with fossil fuels.

“The rising coal, carbon and gas complex meant that the power markets increased significantly with the biggest increase in countries such as the UK who are most dependent on gas for generation.