Energy is Exciting
ETRM is boring

00:00

Ben Hillary Okay, excellent. Well, hello everyone, and welcome to today's webinar: Energy is Exciting. ETRM is Boring, examining changes in energy and commodity markets and how E/CTRM can support them.

My name is Ben Hillary. I'm Managing Director of Commodities People, and I really would just like to say a huge thank you to everyone for being here with us. Really, really delighted to see how much this webinar has attracted the interest of the global commodity trading community with just over 750 registrants from all corners of the globe.

Well, it really has never been a livelier and more exciting time within energy and commodity markets with the forces of digitalization, decarbonization, decentralization, amongst others, really driving immense change in recent years.

At the same time, in most cases, E/CTRM systems have actually struggled to keep up with the pace of change, leading to frustration and to low user satisfaction. I say this anecdotally from mine and my colleagues' constant interactions with the industry. But, I can now also share with the audience a very interesting and quite sad statistic. As our watchers will remember, during the webinar sign-up process, you were asked to rate your satisfaction with your E/CTRM out of 10. And, the results are rather uninspiring – 5.4 out of 10.

The goal of today's webinar is really to explore some of the most exciting developments in the industry, including renewables, carbon, crypto will then slip, assess potential shortfalls in trading systems and identify some practical strategies to avoid being held back by your trading software.

I'm absolutely delighted and thrilled to be joined here today by really an exceptional lineup of speakers from across the industry: Tim Kramer, Founder of the Green Energy Commodity Fund; Andy Weathers, President of ARM Alternative Energy; Pat Reames, Founder and Managing Partner of ComTech Advisory; Bob Schultz, Head of North American Markets at Xpansiv; Tito Toro, Senior Director of CME Group; David Leevan, CEO of cQuant.io; and Sameer Soleja, Founder and CEO of Molecule.

Today's webinar will take the format of a series of short presentations, with two 20-minute panels. Following the second panel, an audience Q+A will take place. So, on that note, throughout the webinar, please be posting your questions in the Q+A box and uploading others of interest. Also, do make full use of the chat channel for any comments you wish to share with the panel and the audience, or even just to introduce yourself and say hello.

So without further ado, I'm now delighted to pass over to Sameer, Founder and CEO of Molecule. Sameer, the floor is yours.

03:06

Sameer Soleja Thank you so much, Ben, and thank you to all of the panelists on this call. You all are friends and colleagues, and I'm super excited to have this conversation with you today. Let me pull up my slides real quick.

So, why are we here today? Well, the energy industry is changing in ways that are super interesting. And, I think for many of us on this call, a lot of those ways are obvious, but there's much more that's a bit less so. From the perspective of an ETRM vendor, we get to see a lot of interesting things. And, while we can't share lots of detail, for obvious reasons, we wanted to share at a high-level what we are seeing that we think is really interesting. And then, we'll go deep with our panelists and get perspectives from some of them who are doing the most interesting things.

So, two slides to give you some context about who I am and who Molecule is. And after that, we're not going to beat you over the head with Molecule anymore. So, who is Molecule? Molecule is the world's modern turnkey CTRM. Our "thing" is that we are cloud-native; we have a single production environment. We support 50 commodities – physical and financial. Our whole value prop is "focus on good design to make your workday better."

We are the market leader of ETRM in technology, and we don't really just use technology for technology's sake. We use it to focus on reliability and availability. And then lastly, we're values driven. We do what we say we will, and we put our money where our mouth is because we sell our software at a fixed-price. We don't share our customer list publicly, but we serve dozens of customers you know, including IPPs, marketers, pipelines, transportation companies, PE funds, hedge funds, and prop funds, as well. 50 commodities. 25,000 symbols on our system. 80 billion of notional value.

We are also very heavily focused on integrations. We have about 30 of them today, with North American ISOs, Morningstar and MarketView; many different exchanges; 15 futures clearing merchants; integrations to SAP, NetSuite, Workday, and Sage; a new upcoming integration with c.Quant.io, and David from c.Qaunt.io is on this call, as well.

And also, we have a new offering coming out in Q2, Bigbang, which is our data fabric for energy. Bigbang is our new data fabric platform which features a data-lake-as-a-service that allows automatic imports of data from Molecule and your own sources, as well. And, graphs on top of it. A semantic layer built and maintained by us – people who understand the data for you. It, just like the rest of Molecule, comes with first class reliability and cost containment built-in. Feel free to check out our website, our packages page to learn more.

Okay, that's all about us. But, hopefully it gives you some context as to why we might have something interesting to say.

So for the last 10 years, from my perspective, energy has been kind of boring. We've had low prices and volatility, especially in U.S markets. You know, ever since the end of Centaurus. We've sort of been at the bottom of a supercycle. It's not been a great time to start a hedge fund; we've seen people try. It was a really bad time to start an ETRM company – I know because I've done that. And, there was a lot of conversation about whether we were simply just building better mousetraps... a cloud version of what came before. But interestingly, it's been a much better time to be in tech. Obviously, tech worldwide has gone crazy. There's been so much innovation, and that's actually helped us as we built our company, to get up and going faster. But, I mean, as you obviously know, the rest of the world has really been about tech, until recently.

There's a really great article by Janan Ganesh in the FT a couple of weeks ago talking about how really the sentiment has been for the last 10 years, that tech is the thing that makes the world go round. And, it's not. It is clearly not, and the events of the last few months have borne that out. You know, things have changed in the last couple of years.

We obviously had COVID and the sudden massive shift towards renewables and ESG requirements for corporates. We had oil prices tank, then recover, then recently start to fall again. Grid scale batteries coming online for real, obviously, what's been going on with crypto, and loose economic policy that's fed its rise, and other asset bubbles, as well. And then, of course, the awful, awful invasion of Ukraine has changed everything. And now, in early '22, what we're seeing is that the projects that people started cooking up during the beginning of the pandemic are starting to come online. And we, as Molecule, are certainly seeing a lot of the interesting ones.

So, over the next few slides, I'll talk a little bit about some of the obvious things that we've all seen, but maybe some things at a high-level that are less obvious, knock-on effects of those things. And then, of course, the panelists will go deeper.

So obvious, right? Renewables has grown, taking the world by storm. I think some of the things that we've seen that are less obvious is that European majors have spent a decade of working in the U.S on renewables – sometimes quietly, sometimes not so much. I know Tim and I had a conversation a couple of years ago about that and why it was that it was European utilities doing this. But, they should be reaping prizes now. Corporates are greening... basically focused on greening up their data centers and other parts of their operations based on ESG requirements and even employee requirements.

Buying outputs of distant gen sometimes needing to know about FTRs or other really, really detailed power instruments. Some are starting their own trading desks again. We believe Apple's doing so. We've seen a massive growth in carbon markets, and Bob Schultz from Xpansiv is here to talk a bit about what they see today. Everybody is looking at carbons in renewables desks. Everybody. And, I've... the number of calls we've had about that recently is surprising. And, Andy will be talking a bit about that today.

And then, you know, we've had a world where there were exchanges. There were price providers. And, that was really it. But now, we're seeing lots of registries coming online that are separate from the original systems of record. For example, see what's happening with ISOs and systems like Emirates and APX. There's a need to connect to many of them because those are transactions, as well. Credits or transactions, as well, that are meaningful to portfolios today.

Another obvious thing: crypto going pro. Certainly, hedge and prop funds trading crypto, and the large banks have been doing so for a while, sort of behind the scenes. A little less obvious: tax issues around crypto mining and trading. There are some real questions around that. And, regulatory issues, as well. Whether it's the CFTC or SEC that's going to be regulating crypto in the US, for example. We actually are part of a webinar with the law firm DLA Piper, later this week, where we'll be talking about some of that. The roll was returning a huge come out, so that's the spot two futures roll with the CME ticker being the futures. It was returning something like 30% per unit for a while but requiring massive, massive positions to get there.

We've been asked this before. And, you know, whether corporates are trading crypto, and the answer is yes, absolutely, for real. And the most obvious place would be IPPs and related parties, Folks who have access to one of the key inputs to crypto mining or crypto trading or the understanding of how the things... how the spread works, you know. Gas to power to crypto, or what they call hash spread or crack spread. HPC, high performance computing, and crypto mining also can be thought of as a way to have, a sort of, baseload consumption that can be turned off from time to time. And then of course, there's Giga. I think Giga was the folks who were using flared natural gas to run high performance computing, specifically crypto mining, as well.

13:05

Sameer Soleja All right, then batteries, right? Obvious thing about batteries is that batteries shave peaks and troughs. I think some of the things that are less obvious is that peak and off-peak blocks don't matter in that world. You know, those were really constructs for a simpler time when perhaps the world was moving from natural gas trading, and power trading was coming online, and we needed a way for humans to simplify this view. And, that's just not necessary in the battery world anymore. 4CP payments for reliability or for load shedding can totally make sense for small gen and can be offered as a service. I have a friend doing that.

Weather derivatives are starting to matter again. We saw those fall into our system a few years ago. Colocation of batteries and renewables and high performance computing or any combination thereof, can start to look a little bit more like conventional gen or maybe super manageable load. Power grids are trying to learn to stabilize frequencies at nodal locations as opposed to simply power plants. And, less of those of us in the traditional energy space think that we are owed this mantle of the future of energy. Silicon Valley's absolutely in the middle of this today. And, there are loads of folks from Silicon Valley trying to figure out the energy space internally. And, I think they can be great partners.

Alright, obvious is that the fuel mix is changing. Maybe less obvious is that we're seeing lots of smaller refineries popping up with needs for modern systems. We're seeing majors get involved in carbon capture and or renew Well fuels in a bigger way. Obviously, LNG is much more important in the wake of the invasion of Ukraine. And, you know, Cheniere, I believe... I've heard is running at capacity, as well, which is interesting. Equity investors are starting to get interested in energy markets. And, there traditionally haven't been a lot of places for them to go. And, I think Tim's going to talk a bit about that today. And, we're seeing debt show up alongside energy risk portfolios. People entering debt in our ETRM, which has been... which was certainly a surprise to us. Things like interest rate swaps, etc.

All of this to say that I think energy is super interesting right now. That's what we talk about with our team. You know, I had a really lightweight summary here, but the panelists will go a lot deeper than I will. Patrick will have a talk about how systems are adapting and or need to adapt. And then, we'll have a bit of debate, which I think should be lively. I'd just like to leave us with a statement sort of derived from Molecule's slogan, which is that what we do is important. And sometimes, you know, we may have felt, in past years, if people look down their noses at the dirty energy industry, but "hey, man, what we do runs the world."

All right, let's hand it off. Back to you, Ben.

16:28

Ben Hillary Excellent. Many thanks for those fascinating insights. Well, I'm now delighted to invite Tim, Andy Tito, Bob, and Sameer to the metaphorical stage for our first short panel on the subject of "Energy is Exciting," exploring the most interesting developments of the last two years and what we can expect in the future. So, to get the ball rolling right away, if I could ask each panelist to briefly introduce yourself, and tell us why energy is such an exciting place to be right now.

We'll start with you, Tim.

17:05

Tim Kramer Hi, my name is Tim Kramer. I work for a company called CNIC, Carbon Neutral Investment Company. And, what we've done is, we've developed a suite of products that are certified as carbon neutral for power strategies, energy strategies, and commodity strategies.

And, why energy is exciting. Happy to answer that – it's probably just best kept once we get into the panel because I've got that worked out for you.

17:27

Ben Hillary Good, good. Andy.

17:30

Andy Weathers Great. My name is Andy Weathers. I'm the President of ARM Alternative Energy. We're a privately held integrated energy firm that invests in upstream, midstream renewables and do hedge advisory. We've put to work about three and a half billion dollars over the last several years.

And, why is energy exciting? I'm going to echo with what Sameer said. First off, volatility is very interesting. You've got the energy transition occurring. At the same time, you've got the current events that are tragically occurring as well, which is just adding to the volatility. Both of these things are going to lead to a larger investment, ultimately in this space, because renewables cannot solve everything, as we have it today. And, there is certainly the desire to decarbonize. So, very exciting because of these things going on.

18:23

Ben Hillary Excellent. Tito.

18:27

Tito Toro Tito Toro with the CME Group. There isn't much to say about CME Group other than...

Why is energy exciting at this point? As we can see, with the events occurring in Ukraine, that the impact on the world markets as a result of the stoppage or the sanctions on the Russian oil. We can see the impact that is having on economies all over the world. As you said before, renewables can only address part of it.

19:15

Ben Hillary And finally, Bob.

19:19

Bob Schultz Yes, good morning. Bob Schultz, Head of North American Markets for Xpansiv. And, Xpansiv is the largest spot exchange for ESG commodities, primarily focused on carbon offsets, at the moment, renewable energy, water.

And, what I'll talk a little bit about and what's exciting to me in energy is differentiating commodities and basically the transmission of energy. Take into consideration all the environmental impacts and how do we monetize that in a way that brings up market solution for it?

19:51

Ben Hillary Excellent, thank you.

Okay, well, the next question I'd like to direct to Tim, who touched on this earlier. How does energy relate to equity and debt markets today?

20:02

Tim Kramer Thank you, Ben.

So, I would say there's three points I'd like to make on how energy relates to the equity and debt markets today. The first would be the metrics. The second would be the sophistication of the players, and the third would be ESG. So, Sameer, if you could go to the other slide, please. Thank you.

So, Modern Portfolio Theory (MPT) says that investors should have between 5 and 15% of their AUM in commodities. And, that's for inflation protection and for portfolio diversification. So, if you take a look at the graph – and this is normalized, going back to the beginning of 2010. Energy – and for energy, to reference this, the Bloomberg commodity energy sub-sector total return – so, energy and commodities in general, from 2010 to about the middle of 2020, were just basically what they say down into the right.

So, the energy annual returns were a minus 8% annually during this time period, and commodities were actually minus 18%, during this time period. So, investors would say, "Oh, that's okay because I hold these things for inflation protection or for portfolio diversification." So, in terms of what that looks like for portfolio diversification, during that time period, energy was about -18, with respect to the correlation to debt. And, it was about +35 with respect to the correlation of the price changes to equity, and then referenced and tips as the inflation it was about... we'll say, +24.

So, what happened then during this time period is investors – and, we say investors, we're talking the top 20 pensions by AUM and the top 20 endowments by AUM. They all in essence, just lighten the load. They just took it to the bottom end of that recommended 5 to 15%, or in many cases took it, you know, even below that. And, the prevailing sentiment of those investors was, "Well, why am I in this? The returns aren't there." So then, a funny thing happened. Starting around mid-2020 up through now, the returns have gone through the roof. So, on an average annualized basis commodities from the beginning of, like, May 2020 to now commodities are up about 70% for an annualized gain, and energy is up about 90%.

But, the really interesting thing is the inflation protection and the portfolio diversification that their investors wanted, those numbers stayed the same. So, the correlations of energy to debt equity into the tips for inflation stayed the same during that period. But, you all of a sudden had a lot of money come back in. So, referencing the money flows, for commodity ETF inflows, the first two months of ‘22, you had about 12 billion come in. And during the first two months of ‘21, it was -4 billion. So, it's a really interesting dynamic, and the investor said they want commodity and energy exposure for inflation protection and portfolio diversification.

Those things really haven't changed during these two time buckets. But, what has happened is the returns went from abysmal to really strong. And, that's when the investors pour back in with the money. So, you know, the reasons for the pop in energy and commodities, in general. And then, you guys are all probably much better than I am on the macroeconomic things, but the post-pandemic pop and infrastructure spending bill, inflation, Ukraine, a commodity, supercycle, etc. But, that's kind of what we're seeing, for the first part – the metrics.

The second thing was how energy relates to equity and debt markets today. I would say would be the sophistication of the players. So, the debt and equity investors, if we say, from like the same time period from like, 2000 to like 2010. You know, we would see these guys. They'd call up their colleagues. You'd see him at conferences, etc. They were pretty much just... let's just say traditional analysts. And, they would be doing Graham and Dodd, some a parts, etc. Very smart individuals and very sophisticated way of looking at it, but not the traditional way that energy usually gets looked at today. It was just more regular economic analysis.

And then, something happened around 2010. And, I think some people point to, like around 2008, 2009 timeframe. So, Jim Hackett, who was the CEO of Anadarko at the time, and it was publicly traded. He started buying a lot of other publicly traded companies in the space. And, what he said is, "Look at the public sector is going to value these public companies at a $40 crude oil strip for the next 10 years. And, I can hedge 50, which is where it actually is, I'm going to do that and take that out of the marketplace." And so, that seemed to kind of awaken the debt and the equity investors about the level of sophistication of what some of the inputs are in the models.

And, I'd say now, the questions that we get, and the people that we talked to was just amazing how deep in the weeds they are. So, the power investors in both the debt and the equity space, they're looking at running dispatch models, capacity models, and just a whole host of things that are a lot more sophisticated than they were 10 years ago. Same thing with, like the oil and crude space. These guys are going way deep in terms of like, flow models, pipeline gas flow models, recounts, even the risk metrics on this stuff. So, obviously the second point is really interesting how the debt, the equity markets have... the analysts have just kind of ramped up their level of expertise.

And then, the third and final point would be, on how one issue relates to the equity debt markets today, would be ESG. And there's, you know, some other panelists on here that can talk a lot better detail than I can on this. So, just to cover briefly from what we're seeing is, with respect to the debt markets, absolutely won't touch coal plants, squeamish on natural gas plants, and there's just an absolute demand for a premium for anything that's touching oil or gas. If you're even allowed to touch it. Kind of the same thing with respect to the equity markets.

So, in general, kind of the way this worked is early on in the ESG cycle. If you could spell ESG, people would throw money at you. And then, the investor started to say, "Well hold on a second, you know, we're worried about greenwashing." And, they would start to scrub through the numbers and get really into the details on what you were doing and whether or not it should be counted as being carbon neutral or ESG compliant or something like that.

Then, the pendulum kind of swung a little bit differently. And, investors started to say, "Well, okay. Wait a minute. We're gonna hold off on anything ESG because you guys don't have this sorted out." And, between COMP 26 and what I can use offsets for what I can't use them for and how to calculate my footprint... I don't understand. It doesn't make any sense. I'm going to let somebody smarter than me sort this out that will come into it.

But, what we're seeing now, and this is probably like in the last one to two months, is with the upcoming SEC ruling about the disclosures that companies have to have with respect to their carbon footprint, and potential plans to solve that, we see these guys just absolutely scramble. They're grabbing for anything they can. Like, "Oh, can I use offsets for this? Can I use RECs for that? What can I buy this company and say that offsets?" So, it's kind of back to the wild west of, like, what counts and what doesn't count. And, it's, kind of, very unclear. Now, it's, kind of, like to back to the beginning of where it should be.

So, those are the three points on how energy relates to the equity and debt markets, the metrics, sophistication of the players, and then the ESG piece.

And back to you, Sameer, and thanks for the opportunity.

27:02

Ben Hillary Excellent, thanks for that and those very, very, very interesting points. And actually, that leads us very neatly on to the next question, which I'm going to direct to Andy. Well, what – from your perspective – what's up and coming in renewables and credits? And, how about carbon?

27:20

Andy Weathers Yeah, thank you, Ben.

Tim is absolutely right. The foot is firmly on the accelerator as it relates to companies trying to understand what their obligations will be related to the most recent SEC release. It's a roughly 500-page document. And, it's going to talk about what is going to be required as it relates to your GHG footprint across all three scopes of the types of emissions, which are putting out whether it's scope one, two, or three.

A lot of lack of understanding, a lot of voluntary pledges have been made for the 2040-2050 timeframe, which leads us to what sort of ways can companies reduce their carbon footprint. Tim mentioned voluntary – or excuse me – carbon offsets. And, that is absolutely one way that companies are going to have to utilize, or one instrument companies will have to utilize. But, what's very exciting is you've got a renewable natural gas market that you can take all sorts of waste, whether it's manure, or garbage, or wastewater treatment plants, or biomass, all sorts of different things. And, you can create pipeline spec natural gas that can be used for thermal uses – what we think of normally going into your home for cooking. It can be used for CNG and transportation. It can be used to generate reliable power. So, you're not relying on wind, or solar, the sun being out. And, because we know right now, batteries don't have sufficient capacity to be reliable on a wind and solar grid.

Now, there's total production of renewable natural gas today is still very small. But, there is a very, very significant pipeline of projects in development. And, that's very exciting. Another thing that's really exciting is going on in the renewable spaces – the idea of dropping fuels. And essentially, what a drop in fuel is, it's a renewably sourced fuel that you can use today without having to modify your vehicle. For example, sustainable aviation fuel. You can just put that right in the plane today. There are limits today. The limit is 50% of the total fuel can be sourced from SAF. But, over time, that is going to grow and that is a carbon negative or carbon neutral fuel, which is very beneficial.

Same with renewable diesel. We've all seen the announcements almost every single week of somebody's building a new renewable diesel plant. You know, these things are $300 million to $1 billion investment and the flood of RD coming to the market is material. Synfuels is kind of the stepchild, if you will, or the kind of a lesser used term as it relates to gasoline or some of the other inputs that you could use. Simply because the energy density is not quite as attractive as some of the other available, fuel replacements or drop in fuels.

If we think about the tradable instruments – and this is really going to relate more to the carbon markets. But, what Bob will talk about, the digital certificates for certified hydrocarbons. Specifically, there is a big push for what's referred to as RSG, or responsibly sourced gas. This is a certified low GHG gas that is produced from traditional sources. However, they take steps to ensure the minimization of methane escape. They're doing the same for crude oil now, as well. The beauty of these instruments is if you want to buy RSG, it might be hard to source it where you need it. And, with these digital certificates, you can essentially trade the attribute. And, that's really exciting. Because, if you're a hedge fund for example, you don't want the physical, but you want the certificate. Or, if you're a corporate, you can go out and buy these certificates. Very exciting.

And, that is, kind of, what I would say, kind of, parallel with the broader carbon markets, both the obligated and the voluntary markets and the obligated market. You think of RINs, LCFS, on the federal and state level for the obligated parties. Those right now are significantly larger than the voluntary carbon markets. I would say that over the next four to five years, the size of the voluntary carbon market is going to exponentially outpace the size of the regulated or obligated markets.

And, the reason for that is largely due to the voluntary commitments that have been made globally to reduce your carbon footprint. Now, where that can get a little fuzzy is... are some of the voluntary actions that have been taken – will they be mandated at some point in the future? That's very possible. So, the mandated markets could grow. But, the bottom line is this: a market that is going to grow 10x or more over the next probably five to 10 years.

Very exciting. Lots of different instruments. It's very opaque. For those of you that trade natural gas, you are familiar with the natural gas markets. It's kind of like a basis market. What's going on in the Z6 in the northeast is not necessarily related to what's going on at the SoCal citygate. And, that's very much like what's going on in the carbon, the voluntary carbon market because you can generate a credit in Somalia or Thailand or the United States. And, what registry is it on? Can it impact the value? What is the source of the offset? Is it nature-based? Is it technology-based? All of these things make it a very opaque market, and therefore it creates a lot of opportunity.

33:13

Andy Weathers So, that's kind of what's going on in the trade markets, in terms of some other technology that I think is really exciting is, you know... solar has been around a long time. If you want to invest in solar, you're looking at, you know, very marginal single-digit returns. And, that's not terribly exciting. The energy payback is roughly 18 months if you go with a traditional silicon solar panel system. But, what's going on is there is this organic photovoltaic market that is developing right now to utilize his organic ink. And, it's printed on plastic. It's malleable. It's tunable. And, it takes about 1/3 of the time to get the payback as a traditional solar system. Very interesting.

The life is not as great as a traditional solar system. However, it offers a lot of really interesting benefits. We're starting to see some real estate developers take advantage of it, and it's very exciting. Same with batteries. You know, the technology will continue to improve. It's not where it needs to be today. But, as we've seen over many cycles in this commodity market, technology seems to solve things. When, you know, 15 years ago – shoot, maybe 20 years ago – when everyone was talking about "we need to build all these LNG import facilities because we're running out of energy... peak, crude peak oil."

Everyone probably remembers Simmons talking about that. Well guess what? That was solved by shale. And, that was the pivot where billions of dollars of assets had been installed that were now useless. And, we had to pivot and turn these export facilities and import facilities. I think things like that will happen with batteries. It's going to take time. There will be some tipping point that they'll be a big breakthrough.

Another interesting thing is... hydrogen has been the fuel of tomorrow for a very long time. And, it's still the fuel of tomorrow, will it remain the fuel of tomorrow's is questionable. There is certainly a big push to roll it out into transportation. California is really the only state right now that has any material dispensing for consumers. But then, when you think about turning hydrogen into green hydrogen through the use of renewable natural gas or solar or wind to create that hydrogen, then you really do get things that are pretty interesting as it relates to, you know, actually reducing GHG and providing sustainable energy sources.

And, the last thing that I want to touch on would be carbon sequestration. It is fascinating. It makes a lot of sense because we have these significant caverns all around the world where we can inject CO₂. Direct air capture – I think everyone can admit today is a fairly challenged technology. However, when you capture from the flu of an ethanol plant or a power plant, your ability to reduce material quantities of CO₂ is actually accomplishable. Right now, it is still very expensive though to install these technologies. It's over $100 a ton to set up a system where you can inject if you go by the Class VI well ruling that the EPA says you have to do. You know, that's a three-year permit right there. So, it's fairly challenging.

I think another area that is very exciting is the idea of microgrid, or even micro-nuclear. Rolls Royce just announced, I think last week, that they are stepping into this small modular reactor space. And, they are working with the British government to install – I want to say it was 10 or 15 small nuclear reactors that can be built in the warehouse, put on a truck transported to a site and then installed. And, they can generate anywhere from 30 to 300 megawatts of power. So, a lot of exciting things. You know, this is just the tip of the iceberg, frankly.

But, you know, appreciate the time today, Ben and Sameer, to you know, talk about these things. Back to you, Ben.

37:27

Sameer Soleja Thanks. Before we continue, I think we're just going to post a quick poll. And so, you may see that in your system.

Thank you so much, Andy.

37:40

Ben Hillary If the audience could now vote on the poll which should have just... yes, great. There will be a few more polls as we go through the event.

Lovely. We'll leave that running in the background for a few more minutes while I move on to the next question while I move onto the next question.

So, next question – I'd like to address to Bob. How is the landscape changing from a bipolar exchange focused world in... from what you're saying?

38:21

Bob Schultz Yeah, thank you. Thank you, Ben.

I don't know that necessarily we're changing from the bipolar world, per se. What I see occurring is that, as the evolution of all these new renewables and many of the things that Andy just talked about, the existence and the addition of registries as a means of actually verifying and creating integrity around the new markets didn't new digital assets that are coming about as a result of energy transition. In all cases, SAF or any of the biofuels, or any of that there's got to be a way of providing integrity around actually what you are buying.

So, at Xpansiv, what we're working on is the infrastructure to manage the digital assets. Along with, you know, not upsetting the world as it is today in the energy sector. How do you keep the operations associated with natural gas transporting through a pipeline or crude going through a pipeline or on a vessel? And, how do you incorporate into that the different aspects of those energy components? And so, there is a without exchange, which is a digital exchange whereby the assets associated with the attributes of the energy transact separately from the physical product.

But, that doesn't necessarily mean that there's an entire change. Because, even in the case of carbon, we have been able to team up with the traditional futures exchanges that have to have a long-term price. Such that, if there's a spot price signal, it can be transformed along with features exchange or the other exchanges in order to provide price transparency out of a longer curve so that assets can be evaluated, and people can make decisions around economic decisions, around those commodities which are developing. It can be carbon, RECs. And the like... and I also believe that with regard to what Andy was talking about voluntary markets and everything else, the ability of an exchange like Xpansiv, which has digital assets and allows for the interaction between registries, which are maintain those assets, gives the ability for more rapid transition in those products. And for example, you have... you do have your REC compliance market.

But, in the case of converting to a voluntary REC market with the ability of, you know, our exchange, we can create a standard instrument that allows for people to ,you know, transact in say, a voluntary REC product that may go across different regions or different sectors, or having a basis, as Andy mentioned, also. Base markets for responsibly sourced gas so that you can transact a methane intensity asset in Haynesville, that, you know, is compared against what the Haynesville average for those kinds of things. So, I think we... it's the addition of additional market infrastructure that allows for integrity in these digital assets that are differentiating commodities. And, they can work in tandem with the existing exchanges in order to allow for the hedging and the price transparency associated with these new assets as they evolve.

41:36

Ben Hillary Excellent, thank you for that.

And actually, this leads us quite neatly and nicely on to a question for Tito. How are exchanges changing? And, what new things are you releasing for that?

41:53

Tito Toro So, a lot has happened in the exchange space over the last few years. Obviously, the entrance of new exchanges. We're seeing a large number.. we're seeing lots of new things showing up specifically in the Bitcoin space. Similar to what we saw in the early 90s, early 2000s. At one point, there were, in the late 90s, close to 10 exchanges trading contracts. Of those 10 exchanges, only two have actually survived.

What we're seeing in the crypto space, exchanges that are popping up everywhere – only a few will survive. And, pending regulation, the natural order of things... because many of these things, exchanges will fall by the wayside. Some of the more exciting things, the exchanges working as you know, you know, energy is only one of the asset classes that we have – you know, treasuries, cryptocurrencies, ags, etc.

For the exchange, lots of exciting things are happening. For instance, we're releasing, on March 14th – we announced to investors they'd soon be able to trade daily future price moves with event-based contracts. Those are contracts that will trade based on the settlement price of our most liquid products. We've seen massive growth in micro contracts, micro cryptos, micro metals, micro treasuries, micro effects, etc. These are products that are primarily geared to the retail investor.

We're taking a bigger role in the development of benchmarks. You know, on the CME Group and CF Benchmarks are launching 11 cryptocurrency reference rates, real-time indexes. Exchanges are taking a bigger role in this space with the Petro Index that we're releasing. We are working with a number of players, specifically Xpansiv here, for creating reference rates for carbon markets. And then, we're embracing the physical market and beginning to embrace a lot of the technology solutions.

On Thursday, last time, March 3rd, we did a P1020 aluminum contract and auction for Owensboro. We're starting to see a lot of interest in alternative venues for executing these transactions. So, auctions. We're doing... CME has auctions. We did a series of auctions for Iraqi crude, and we're looking to expand that into other asset classes. For the last several years, we've done daily dairy spot auctions hosted on similar technology stacks.

So, what we're finding is that market participants are looking for new ways to execute, and as an exchange, we're providing them those avenues.

44:42

Ben Hillary Excellent. Thank you for that. Well, next question. And actually, gosh, we're already getting behind time.

I'd like to direct the next question to the panel. It's obvious that we're all excited about what's happening in energy. What do you expect to be the major developments in the next 5, 10, 20 years? And, if we could all give some very concise thoughts on that, so we can get back on track. And, we'll start with Tim, Andy, Tito, Bob, then Sameer.

45:20

Tim Kramer So, what I expect the next 5, 10, 20 years with energy would be liquid contracts that allow you to get energy exposure and/or commodity exposure. But, it has to have some sort of certification to say that it's carbon neutral and or ESG compliant.

Carbon neutral is obviously a little bit easier to define than ESG compliant. But, there just seems to be a huge groundswell right now for that. A lot of inbound calls to the major index providers on trying to create those things. And so, I think those products, you're going to see those coming to market pretty quickly here, and then start to get refined once those initial intent.

45:58

Ben Hillary Excellent. Andy.

45:59

Andy Weathers Yeah. So, I think a couple of things over the next decade or so. One is the widespread adoption of low or lower carbon fuels. To me, that is very exciting. And, I think that's going to continue to progress. And, it's going to be the result of, what I'll refer to as, the circular circular economy, i.e we have waste that can be turned into renewable plastics. It can be turned into renewable fuels. It can be turned into renewable electricity – all these sorts of things. So, really getting the technology and the understanding and the cost-effectiveness to take and recycle and reuse as much of the items that we use in our life to extract everything out if we can, everything out of them that we can in this circular economy. I think that's really very exciting.

46:55

Ben Hillary Excellent, Tito, that same question to you please?

Sorry, Tito, you're muted there.

There we go. Oh, sorry. Tito, you're muted there.

47:27

Tito Toro Can you hear me now? Sorry.

Alright. The shift from fossil fuels to renewables is underway in most parts of Europe and the U.S. To move from large generation assets to small scale distributed assets – like wind farms, battery, solar – it means that many changes are needed in the grid and related infrastructure. Along with changes to existing business processes and models, in both wholesale and retail power markets.

We need to ensure the generators can deliver power profitably. The grids need ensuring security supply of these more volatile renewable assets.

These fundamental changes are creating new opportunities in the market. New business models, new approaches – I think we'll see an increase in digitization technologies which will allow firms to streamline, simplify their workflows, along with creative uses and existing technologies. For instance, Exxon Mobil's involvement in Bitcoin mining. Exxon partnered with Crusoe Energy systems to address glass flaring and oil fields to turn that into power for use by miners. We're going to continue to see creative uses of existing infrastructure.

48:32

Ben Hillary Excellent, Bob.

48:36

Bob Schultz Yeah, I echo a lot of what's already been said. But, I would say that, from my perspective and our business, in particular, I think the ability to collect information. It comes down to, you know, down the entire lifecycle of energy in the way it is actually transacted and transported. And, everything that you know... information around environmental impacts will become, you know, digitized and tradable in some form or fashion, whether there's a value to it or a discount to not having it. I think we'll see that over the next 5-10 years.

I also think that we'll see a transition. Offsets is a significant portion of the answer of that today. But, I think that we'll see a transition, as offsets become more expensive and difficult to acquire, that people are looking for lifecycle solutions around their energy consumption. You know, and eventually getting to the capture aspect of things because that's where we eventually have to get to hit where there's no way for us to hit net zero in any other way than we eventually, from technology are able to get to a capture situation and over and not only reduction, but you know, elimination and negative on the carbon and other environmental aspects.

49:49

Ben Hillary Thank you. And, Sameer, if I could pass that question over to you, also.

49:55

Sameer Soleja Absolutely.

I mean, I echo everything really that's been said so far. I think electricity markets and the things that feed electricity markets – the other commodity markets that feed them – I think those will get more interesting. And, I think we're also going to see smaller and smaller scale distributed generation, which I think is going to be fascinating.

50:16

Ben Hillary Excellent. Then, the very final question for this panel. The next panel is going to be about ETRM.

So, to those users and to the technology provider, how do you feel that ETRM systems are keeping up with all these exciting developments we've been discussing? So, we'll go to Tim, then Andy, and then Sameer on that one.

So Tim, how do you feel ETRM has been keeping up with everything we've been discussing?

50:44

Tim Kramer Well I think the ETRM systems themselves have been doing a great job of keeping up. I think the interesting dynamic has been the paradigm shift and who the users are, at least from what I've seen.

So, before it would be, you know, the IPPs would get an ETRM system and measure their positions, etc., and the rest of the reports of the management. But now, when you see the sophisticated level of the players, like we talked about, and they're taking positions now in you know, underlying commodities, commodity indexes, etc. They're actually looking for ETRM systems to help them gauge, kind of, what their risk is and what those risk metrics are. So, this is a class of investors that hasn't really played in the ETRM space before. That is, now, kind of stepping up and actually understanding what the importance is of getting your arms around what your total risk is.

51:32

Ben Hillary Excellent. Andy, your thoughts on that?

51:35

Andy Weathers Yeah, I would say if we were to reflect back and think about the last 15-20 years of ETRM – which I know Tim and I have been around at least that long, and a few others. Sorry, Tim! It's gone from being an incredibly cumbersome and tedious task to even introduce a new product type, a new commodity code, anything along those lines, where it would take weeks or longer and lots of money, today. It has been streamlined significantly, and the shift from, you know, being on your local servers to an ASP solution, along with the ability of, you know, people like Sameer and his team to be very adaptable.

It's really made this a much less painful experience. And, you have the ability to really drill into things and observe the risks that you need to observe because these markets are incredibly volatile. And, you know, with no view into what your exposures are, it can get pretty, pretty troublesome.

52:46

Ben Hillary Absolutely. Well, Sameer, if I can hand that question over to you now.

52:52

Sameer Soleja Absolutely. Thank you all for the answers. And, I think this actually leads also into the question that came from Marco, as well, which was about how do you keep up with the product diversification on financial and physical physical instruments, because it keeps happening? It's rapid. And, it's only accelerating.

You know, I think for us, I can speak for our firm. And really, what we do is we try to solve every problem twice. We solve it the first time by taking the elements together and getting the product or listed instrument out and available to use, usually within hours. But then once we see how it's used, we want to go solve it again in a way that captures all the nuance of it. And then, it's fixed until something new comes out. So, we'd like to solve every problem twice but only twice.

53:42

Ben Hillary Excellent. Okay, well, thank you panel for your insights.

Now, before we transition to all things ETRM. I would like to post a quick poll for the audience. If we could get that poll up, Gina. Brilliant.

Okay. So, the question to the audience is, how long was your last implementation if relevant? Answers on screen. So, if you could start voting on that now, and we'll leave that running while I hand over to our next speaker.

Delighted to hand over to Pat Reames from ComTech Advisory, who will now give a short presentation on ETRM is Boring or is It: The Market Analysts View.

Patrick, the floor is yours. You're on mute as well. It's the... it's easily done.

54:41

Patrick Reames How about that one? I will just share my screen here, and we'll jump into it. Lots of windows open here. So, one moment.

Alright. So, as you see here, I'm saying, "who says ETRM isn't exciting?" We live ETRM everyday at ComTech. For those that aren't familiar with us, we are a market analyst firm that looks at the intersection of technologies that serve as, energy trading and risk management, and then the macro market trends that impact the users and the sellers and the investors in the companies that sell ETRM solutions. So, I think it's actually while it can be a bit, sometimes tedious, let's call it. I do think the market is very exciting and will continue to be so particularly when you think about exciting. Right now, we are in a bit of a perfect storm. We like the macro markets, those influences that impact users of ETRM technologies.

We've got global conflict now – or potential global conflict. We've got the biggest war in Europe since WWII going on right now with the Russian invasion of Ukraine. We've got the lasting and lingering impacts of the pandemic. We're seeing lockdowns across China, Hong Kong that are impacting supply chains. We've got ESG – clearly a big topic of today's conversation, coming to the forefront and probably more so at an accelerated pace than anybody had previously anticipated. We've got the ongoing energy transition and the impact that that's having in terms of market investment, which we've heard a lot about today.

We've got a tech revolution going on at the same time, but we also have tech security coming to the forefront, particularly as we start to see that global conflict kicking in. We're seeing adversaries starting to use technology as a weapon or a potential weapon across the world. And then, we've got political discord. And, that's not only in the U.S. It's also in Europe and other areas. We see the election in France right now. Really, these elections in this political discord is creating a lot of uncertainty in the marketplace in terms of regulations. What's the path forward for energy producers, traders, marketers?

There's a lot of uncertainty being developed in the market right now. So, these are all feeder bands into this perfect storm. And, this perfect storm is rapidly escalating prices, volatility, and risk. And, there's no doubt about it. These things are really raking across the energy and commodity markets these days.

57:43

David Leevan Hey, Patrick. It's David. We seem to be stuck on slide one. And, would it be possible to put your presentation in full presentation mode? We're seeing all the small slides and big slides. Sorry to interrupt. I'm sorry.

58:00

Patrick Reames I will, let me... there we go! That's it. Set up now? Because, it looks the same on my screen.

58:06

Sameer Soleja It's better.

58:11

Patrick Reames Alright. Well, let me see if I can kill some of these windows.

Let's try that one. Well, possibly you can see it. Look alright now? Okay.

So again, to kind of re-wrap these back around. The macro market trends that we're seeing are liquidity issues. The high prices – margin calls are impacting credit. And, liquidity for many trading entities, and including, some of the very biggest that we've seen, in and around the globe are starting to have trouble in terms of escalating prices. They're looking for extensions of credit. They're looking to get out of the markets. The significant issues are around the balance sheet.

Trade finance difficulties – I think this was touched on earlier in the conversations that we heard earlier. It's getting very difficult to finance energy projects that aren't renewable, aren't green. Brown projects, dirty assets are being frowned upon.

So, we're starting to look for alternative financing options, including PPAs. Alternative lenders outside of the normal institutional lenders that have been out there. Banks, they're getting out of these, what are perceived as dirty assets, regardless of whether they're great for the transition to a fully renewable economy or not.

We've seen supply chain disruptions around the globe – airline, truck, ships – these are all being interrupted, being impacted. And, it's really largely due to the COVID lockdowns and the sanctions that were seeing emerge out of Russia now. ESG and CO₂, again, high impact area on all commodities with significant unknowns. And then, I highlighted significant unknowns.

Given everything that's going on in the marketplace right now, it's going to be difficult to forge forward with a lot of the initiatives that have been announced in terms of trying to get to net zero and that type of thing. We may see some u-turns emerge in the future in terms of timing. I think clearly the path forward is there. I think the timing, the tenor of the changes that are going to be required are really going to be... possibly have to be relooked at.

And then, again. Technology, migration to cloud – it's clearly on. It's going to be a bit of a bumpy road, though when we think about ETRM. In terms of, kind of, the historical players of ETRM versus the newer, fully web-enabled, fully cloud-enabled applications like Molecule, which will clearly have an advantage in terms of being able to really take advantage of the cloud environment. And then, we're seeing growing interest in process automation to reduce costs and accelerate cash flows, accelerate data, accelerate information through the market or throughout the organization. AI, ML – these kinds of things are really going to start to have an impact going forward in terms of technology.

When we think about, again, those impacts on technology, we are seeing quite a bit in terms of product and service and innovation. We expect to see continuing product and service innovations in areas, like risk management and analytics. David Leevan from cQuant.io is on the call. I think he's doing some very interesting stuff there. Automation and optimization – taking advantage of the assets that you have, less reliant on trading but more so on the value of the assets and trying to optimize those assets are going to be a real area of investment.

Short-term market, and real-time trading – what we're seeing in Europe, given they have been somewhat of a less mature market. They've had more flexibility as they start to deploy new technologies, new ways of doing things. The U.S is a very mature market. And you know, I'm a mature guy. I'm kind of set in my ways. I think the U.S market in many ways is kind of set in their ways, too. There's been a lot of investment in developing the processes and technologies that support energy and energy trading in North America or in the U.S. And, those will be difficult to break out of. But, that's clearly going to have to happen at some point, whether it's through regulation, regulatory mandates, industry mandates, whatever. It's going to change. And, we are going to see continuing growth in short-term markets. We have seen five minute markets, and we'll continue to see those expand.

And then, we'll see broad adoption of technologies again, like AI, ML. things that help automate processes make companies smarter. We'll see digitalization acceleration. Migration to the cloud, driven by expectations of cost-reduction, whether real or not real, dependent upon who you're talking with. And, the technologies that you're deploying with an increasing focus on security, as well. So, as you move to the cloud, it's going to continue to be front and center in any decision made there. And then, we're going to see data-centric ecosystems and smaller cloud-based applications.

The huge monolithic applications that we've seen in the past, they'll continue to be out there. It's a horses for courses market. Some companies will need those very large, very broad, monolithic applications. But, I think the advantage really goes to those companies that are looking to deploy ecosystems of applications that are very specialized in their capability and are able to be tied together through very rich APIs and form a real ecosystem of capabilities and functionality that these companies need.

And then ESG, we've again, heard quite a bit about it. Today, we're going to see new products and services emerge. And again, as it was pointed out earlier, some of these will be dead-ends. Some will really come to the forefront, but they're going to be a lot of losers in the market to move into ESG. Ultimately, ESG is going to have to encompass the entirety of the supply chain from source to end use, and it's going to impact trading and all commodities, including origination.

As you start to think about reporting carbon footprints, even if you're not an SEC company at this point, you're going to have to provide your carbon data as part of a transaction to your counterparties. Because those counterparties may ultimately be SEC reporting companies or the companies that they're selling to are going to be SEC reporting companies.

So, it's going to be a significant revolution in the marketplace in terms of how those carbon footprints are tracked, how they're managed in systems. You're essentially buying two commodities. You're buying the commodity that you're going to use. And then, you're buying carbon as a secondary commodity to that transaction. And so, this will have significance as system impacts.

And then, we're going to see increased demand for solutions across the board. We expect ETRM/CTRM and related technologies to continue to accelerate in terms of demand. These events over the last 18 months have really exposed shortfalls in systems. There's also going to be an increased focus on credit. As we're gonna see bankruptcies starting to emerge and credit risk will become, again, as we've seen in the past, a hot topic. Everytime something like this occurs that we have in the markets now, credit risk comes to the forefront and eventually starts to fade. But, I think we're in the upcycle right now, in terms of credit risk.

Impact on technology investments – kind of wrapping it back around. These high-priced and volatile markets do increase demand for systems. As I said, and I think the initial winners are going to be those cloud-based solutions, SaaS solutions with risk analytics, deep and sophisticated risk analytics really benefiting initially. I think to a lesser degree, you're going to see some of the old line, larger-scale ETRM/CTRM solutions also benefiting but to the lesser degree.

The migration to the cloud, digitalization to data management are major drivers. I think the announcement that Molecule made in terms of their Bigbang data lake is certainly emblematic of the need to expose the data in your systems better and being able to provide that data out into the broader ecosystems of solutions that companies are developing. We expect those solutions to be very much data-centric.

Digitalization is going to... continue to be a hot topic along with workflow automation. Being able to better streamline the processes associated with the ecosystem of solutions. These will rely on things like machine learning quite a bit. We expect increasing and accelerating development. Investments in green tech – we've heard all about that this morning. ESG, short-term gas and power markets, small scale distributed generation, and asset optimization.

Pretty much the laundry list of all the things we've heard today. We are going to see markets continuing to move those directions, and the technologies that support those markets will have to be able to encompass those capabilities. The strong political push around climate change, despite the fact that there may be some attenuation of the tenor of change, does increase the level of competence in areas like ESG, carbon renewables for investors.

So, those investments are obviously going to continue. Again, it's going to be maybe a bumpy road and most expect to get to the end goal. It may take a little bit longer, but it's clearly going to happen. And, investments in those areas will continue, both in terms of the assets and in terms of the technologies that support those assets.

So, in short, it's going to be a period of growth for commodity technology, overall. But, there is going to be a strong bias to the newer technology providers. Those that can come out with some very deep capabilities and tie those capabilities into that broader ecosystem of solutions. Vendors of legacy software may not see the same level of increased investment as other areas of technology. However, these guys are also trying to service their existing clients who may not necessarily be moving into some of these markets. So, it becomes a bit of a difficult balancing act with them.

So, what to expect as you move out into the marketplace to look for new technologies – I'm just gonna call this slide, "What to Expect When Expecting to Invest in New Solutions." The tile ran too long. More options in terms of niche or function or focused solutions. Analytics is going to become a real area of investment. A lot of companies are looking for the ability to better understand what's happened in the market. We've got a flood of data out there coming in, trying to make sense of that data is going to become more difficult.

We see asset management and optimization, tools and risk management, in general, are going to be huge areas of investment. As you're out looking for new solutions, you're going to be trying to deal with companies that are also a little bit overwhelmed in terms of vendors. Some of these new technologies are going to be really in demand. And, you're going to be competing for the attention of some of these companies.

Monolithic solutions aren't dead. Let me make that very clear. But, they are not going to see the same uptick in interest that some of the newer solutions, some of the new niche solutions are going to find. Risk solutions are going to be particularly in demand. Big focus on risks of all stripes, whether that's market risk, credit, treasury, operational, and then again, particularly ESG is going to be a huge area of innovation and demand.

I included this line in here because it's conversations Sameer and I had last week: is cloud always going to be cheaper, faster, better? Maybe. It kind of depends on the breadth and scope of what you're trying to do. There's still a lot of heavy lifting to do in terms of implementation. If you run a complex business, it will always be slightly cheaper, at least in terms of deploying the technology standing up a new system. But, there's still a lot of heavy work that may need to be done. Dependent upon how mature, how sophisticated, how... what type of capabilities you need as a buyer of technology.

And then, we also see an emerging talent gap. If you're out looking for resources to help you deploy a new system, new technology resources are going to be available out in the marketplace. But, finding the right combination of technology knowledge with business experience, vacuum. It's going to be a problem.

Particular areas of shortages are going to be in terms of the data sciences. Being able to find the people that can really dig through the data and understand what the data is telling you. As you approach the marketplace and as you're trading into that marketplace or selling commodities in that marketplace. It's going to be an area of real shortage.

And then finally, it's ETRM is – excuse me – is inflation hitting ETRM markets. It's not necessarily obvious yet. But yeah, expect to pay more next year than you did in previous years for software and consulting services. You're going to find that inflation is an ocean that lifts all boats. And, unfortunately, technology and the consulting services and support those technologies are going to be a part and parcel of that inflation you see.

So, I think that's... I hurried through that. I want to get us back on time here. Give the panel the opportunity to continue forward. So, I'll turn it back over to, I believe, Ben or Sameer right now.

1:13:55

Ben Hillary Yep, that's wonderful. Many thanks, Patrick. Really, really interesting points there.

So, yes. Tonight in our final 15-20 minutes or so, we'll move into the final panel. Looking at, "Is ETRM Keeping Pace with Energy Markets, Risks and Best Practices." So... welcome back, Tito, Patrick, and Sameer. And, welcome, David.

So, in fact, I'll go right in with a question for David. So firstly, if you could introduce yourself, and then my question to you would be how would you describe each sector today? And, in your position working with different ETRMs, what are you seeing as the pros and cons, David?

1:14:45

David Leevan Thank you. I appreciate it.

So, just a brief introduction of cQuant.io. We are a cloud-native energy analytics platform. We specialize in total portfolio analysis, that's both traditional assets and contracts – like power plants and hydro systems and whatnot, renewable or PPAs, you know, RPOs, things like that. As well as newer assets, renewables, renewables plus storage, carbon resource adequacy studies.

And interestingly, very interestingly in the last few years, a lot of Bitcoin mining operations. So, our system produces things like mark-to-market, VaR, gross margin at risk, cashflow at risk, net position at risk, credit risk analysis. So, we're a cloud-native energy analytics platform and energy analytics platform. So, we work with a number of different ETRMs in this space.

In terms of the ETRM market, or CTRM market, there's really two markets. And, Patrick did a great job of describing this. There's the old monolithic ETRM systems. The systems that have been around for 15, 20, 25 years that really started in a different technology age. Right. And, you know, just before I started cQuant.io, I was working for one of those large ETRM shops that's now owned by ION. And, the management team, 10 years ago, absolutely knew that the future was in cloud systems, in cloud technology, in delivering this technology through software-as-a-service.

But unfortunately, the ETRM systems – those traditional monolithic systems – aren't incentivized, really, to go that route because of the investment they would have to make to pour all of their systems over. And then, once they make that investment, they're probably getting less money for their systems, right. So, if you have a two-year implementation on some 20-year old ETRM/CTRM system, as opposed to a three-month implementation with Molecule, one of those is going to cost more than the other.

And so, the monolithic systems are – I hope this is changing, but traditionally, they haven't been incentivized to make this change into more modern technology, which is sort of too bad. Because I know many of the people at those shops, and they want to do interesting things there. You know, these are not people who love bureaucracies necessarily. They would like to do more interesting things, they would like the pace of change within their systems to increase, but that's very, very difficult.

And then, there are the new CTRM/ETRMs that are cloud-native, that have modern APIs, that have modern software, that have a single code base for all of their customers. I cannot stress to you enough – I think every ETRM RFP should have a question in it that says, "Do you have a single codebase, the same code base, for all of your customers?" Because if you do not, that means by definition, you cannot advance your system; you cannot advance your software very quickly. So, there's really a bifurcation in the marketplace of ETRM/CTRM.

We work with all of the different companies, right? When an energy company or a corporate off-taker or an IPP or renewable developer wants to use analytic packages, we have to work with whatever systems are in place there. And, what we find is when the systems are cloud-native software-as-a-service, modern APIs. It takes us about three mandates to integrate with those systems to exchange data, sometimes a little bit longer depending on the IT staff that are on-premise. But, if you're dealing with one of the more legacy monolithic systems, it might take three months to integrate and get the data flowing.

So, there's a really big difference between those two ETRM markets. And, I think that might... Ben did that answer the question, for the time being? I know we're gonna circle around to this again.

1:19:39

Ben Hillary Absolutely, absolutely. Thank you for that.

Okay, well, the next question, I'd like to direct to Tito. I guess, also from your perspective, if you could give a few words, how would you describe the ETRM sector today? And, secondly, how have you seen that evolve when it comes to working with CME?

1:20:07

Tito Toro Okay, so initially ETRMs focus on price or market risk. With the collapse of Enron, we saw the focus shift to credit risk. Managing risk and commodities has never been more complex and challenging than it is today. Trade wars, tariff sanctions, or geopolitical risk impact everything from demand to sourcing and pricing to profit. And, that's why suddenly by credit, market, liquidity risk. The pandemic and resulting work from home environment... so, it's affected historical demand patterns, disrupted sourcing, enhancing risk on security of access to corporate systems. This is driven to move to more sophisticated risk modeling, stress testing, and analytics that do not rely on historical price data.

In many cases, historical trends have broken down and unexpected events also occur quite frequently, such as sudden collapse in oil prices due to the tanker that blocked the Suez Canal. Increased regulatory oversight has also meant more and more increasing compliance issues. The need to demonstrate greater and more effective controls risk management.

From an exchange perspective, what we have seen is a lot of consolidation in the ETRM space. There's a lot of grant plans to consolidate all the different platforms into a single solution by vendor. But, we haven't really seen that. At this point earlier, you know, how many different code bases are running at each of the clients. We see that every vendor is supporting multiple different branches of their code at the clients. So, a lot of the incumbents are holding on to the antiquated model. Consulting where long and expensive implementations costing into the hundreds of millions taking years to complete and eventually deploy.

A lot of these platforms are struggling to support the new energy products, like carbon offsets, free contracts, options, etc. What's exciting, what we're seeing out there is a new upstarts that aren't hindered by the decades old technology. They can embrace new business models, SaaS and software architectures. Cloud flexibility allows them to implement new products very quickly. Firms like Molecule with its SaaS model allow for quick implementation. Customers could connect their Molecule instance to the exchange in under two weeks using Molecule's open source exchange connectors.

Instead of the nickel and dime approach charging customers for every single module, we're seeing that these new cloud vendors, like Molecule, have more flexibility and are easier to work with. And, from an exchange perspective, we encourage that because a lot of firms won't trade new products until their ETRMs are configured to support those new products. Molecule can add these products very quickly. So, as we introduce products, clients can begin to change them because they have the appropriate systems in place to manage that risk.

1:23:11

Ben Hillary Excellent, thank you.

Well, next, let's move over to Sameer. From the provider's perspective, what do each RNs do well, and what don't they do? Oh no, Sameer. You've been caught out with the mute, as well.

1:23:35

Sameer Soleja Ah, got it.

I know that's sort of a fun question because I think that's been a challenge for us, as we built our company, right? There is this incentive for every software company in this space to try and do everything, and then end up doing nothing well. And so like, for example, one of the things we've seen is that a lot of systems handle forward positions well but may not handle accounting well. And, those that handle accounting well sometimes don't handle the forward positions. Well, the two don't really meet.

You know, I think other panelists have talked about integrations being expensive and clunky. Something that we get asked about a lot is scheduling. It seems to be something where, depending on the mode of transportation or modes of transportation that your business uses, that seems to be something where you buy a system that is specifically for that... but then, might not do other things as well.

And, sometimes, people who bought expensive systems end up doing that off system. You know, something for us, we don't yet do scheduling. We handle physical deals – lots and lots of physical deals – but, we don't do scheduling. With SaaS solutions, though, you can go to a point solution that is integrated with those that do. Like, you can go to Basin for shipping or Trellis or NatGasHub for gas scheduling, PowerOptics for North American power, Inatech for crude, etc.

1:25:07

Ben Hillary Excellent. Thank you.

Patrick, you've seen, well, almost every ETRM since... we can remember. What has evolved as the most exciting aspects in this space over time? And, how's that changed?

1:25:29

Patrick Reames You know, it's an interesting question, Ben. I think what goes around comes around.

If you look back 15 years ago, you saw a real push towards best of breed is what they called it at the time. So, essentially, best of breed at that point was... you bought a monolithic solution that was really specialized in a particular commodity. And, if you traded multiple commodities, you bought multiple systems. If you traded oil and you traded natural gas, you may have had two systems. If you traded power in natural gas, they tried to jam those together. In the old monolithic systems, that didn't always work out very well. So, you may end up again having two systems. Again, best of breed. Who's the best at managing power? Who's the best at managing natural gas?

But, I think now, what we're seeing is a different take on "best of breed." We're seeing a disaggregation of those monolithic solutions. We're seeing specialization, I think, as Sameer talked about. In some cases, you're seeing scheduling or pathing or nominations being treated as a separate capability from a separate vendor. You're seeing sophisticated risk management no longer need to be embedded in these large systems.

And really, it's about the APIs. How do you tie these systems together? Are we there yet, in terms of plug and play across all these different capabilities as you look at the ecosystem of functionality from different vendors? I don't think we're there yet. But, I think technology is clearly paving the road to being able to bring all these different pieces together – kind of, the Lego set, the tinker toy view of systems. No longer spaghetti code that we saw in the past.

So, I think it's an exciting time. From a technology standpoint, I think technology will always lag market developments to some degree. But, I think we're becoming, as an industry, more agile which is something that every company requires, agility. Technology agility is key to success, key to being able to take advantage of new market developments. And, I think we're getting closer.

1:27:45

Ben Hillary Excellent, thank you.

And actually, that ties in quite nicely with our final question to the panel. And that is, what are the most exciting aspects of ETRM that you will see over the coming decades. You know, we're seeing blockchain. We're seeing AI. We're seeing electronic settlement matching and a ton more.

David, you want to feel that one first of all?

1:28:12

David Leevan Well, I'll give it a shot.

So, you know, the... what Patrick mentioned just as he was closing out a minute ago was the pace of change. And, and this is, you know, there's nothing about our world that is slowing down. And so, when you're looking at, you know, buying software – it doesn't even matter for what – you probably need to look at what types of software can keep pace with the pace of change in our world, in our energy markets.

I think we're definitely going towards a more decentralized energy market. More complex. More volatile. More, you know, carbon type or ESG type regulation. And, those will be also driven by different entities or different regulatory entities. So, California might be doing one thing, and Texas might be doing a different thing, or PJM and MISO, right. So, you have to... not to mention the European markets. So, you have to have technology that can, you know, keep pace and do that well.

And again, I think, you know, to Patrick's point – there's really only one technology... type of technology and software that does that, and that's software-as-a-service. Again, going back to my earlier comment on single codebase and more dynamic type of software coding. I think we're also going towards some potential... I'm hearing more and more about carbon content labeling, you know. Where's my energy coming from? Like, you look at a can of, you know, refried beans and you get everything that's in the package. You get all of the information about that package.

I think we're going to see increased demand for carbon content labeling. We're going to see, you know, carbon markets start to mature around the world. More pressure from corporate entities that are getting into the energy markets. Like Sameer mentioned earlier, Silicon Valley companies, large technology giants. One of our largest customers is one of the largest technology companies in the world... that's managing renewable assets and renewable contracts around the world. And so, we're helping them do what we've learned a lot from them.

So, there's a kind of a global push towards cleaner and cleaner energy. There's individual states, individual markets, that are trying to do that different ways. And, how an energy company can plan their technology infrastructure to match that change is probably one of the most interesting aspects of what's happening in the energy markets today and specifically with ETRM.1

1:31:47

Ben Hillary Excellent, thank you.

Tito, your thoughts on the most exciting aspects of ETRM in the coming decades?

1:31:51

Tito Toro From my perspective, it's really in technology. Obviously, as new markets develop, it's going to be the systems have to be able to accommodate them. I think it's going to be things like artificial intelligence, RPA, APIs – increased use of APIs, increased use of cloud services. The ability for firms to, kind of, create microservice architectures that allow them to kind of, in a sense, create best of breeds.

Architectures will develop, kind of, a better visualization for a certain market. They'll be able to integrate that with a different system that's out there today. Easily pull in specific artificial intelligence algorithms that they need that are specific to their markets, that are highly optimized for those markets. That's where, I think, probably the most exciting innovations are going to come in the next 10 years.

1:32:50

Ben Hillary Excellent.

Patrick, I know you covered a lot of it, but any additional thoughts on that?

1:32:56

Patrick Reames No, I think we're going to be seeing the Tesla micronukes installed in every facility over the next couple of decades. No but I think distributed generation is going to, clearly, be a very interesting development and the ability for ETRM systems to, kind of, manage the impacts of those is going to be interesting.

ESG, again, being able to essentially capture and manage two commodities on every transaction is going to be a difficult journey for some systems and the marketplace. Bottom line is, it's change. Change is going to continue to happen. It's going to accelerate. The tenor of change is going to be a bit break-neck I'm afraid.

And frankly, some of the technologies that are out there today are going to have a hard time keeping pace with those changes. It's going to create, I think, some disruption in the marketplace in terms of those technologies that are being sold, those technologies that are in use. And, it's going to be a bit of a different world.

The fundamental, underlying trading of energy and commodities is going to evolve and change very rapidly, as well, as new products are introduced; whole markets are not necessarily retired but become less interesting. I wish I could give you the straight arrow to the future, but there is no straight arrow. There's too many changes, too many influences that are coming. There's sort of a rocky road going forward.

1:34:47

Ben Hillary Absolutely.

Well, Sameer, do you have any sort of closing thoughts on this panel?

1:34:52

Sameer Soleja Absolutely. I loved the answers we just got from the panelists about, you know, where ETRM in the industry is going to be in a few years.

You know, I personally think that we will see better and better technology in this space, as more money flows into it. As the new market leaders invest more money into their platforms to make them more turnkey, to make them easier to use, to make them more like – I don't know – like SNB and enterprise software in other industries that is clearly better.

I think those of us that are in this industry, in the energy industry more broadly, we do some of the most interesting, the most important things in the world today. And, I think we deserve the best. And, I think, what we'll see in ten years is that we'll get it.

1:35:45

Ben Hillary Excellent.

Well, just before we wrap up, we had a number of very interesting questions from the audience. So, just incredibly quickly, I'd like to throw a couple of them out of the panel.

First one from Christian Shutz. How are you seeing RPA (Robotic Process Automation) being introduced to the energy markets?

Any volunteers? Any takers from the panel? Do I hear Sameer?

1:36:20

Sameer Soleja Yeah, sure. I'm happy to.

Yeah, so we see that as an interesting shift to, you know, where SIs are focused in this space. A lot of my former colleagues are working on this, as well. These are good ways to, you know, extract software from an old monolithic system or, you know, bulletin board platforms or things like that. And, you know, to extract data from those and to get them into new systems now.

And, I think there's a lot of opportunities to essentially work around platforms that are old or stitch things together that don't want to be stitched together. And, there's a lot of people doing that well.

1:37:06

Ben Hillary I think in the interest of time for those remaining questions that haven't been answered... if anyone does have impending questions, do directly message myself or anyone here so we can make sure they're properly answered.

At this stage, I would like to head back to you, Sameer, for a few closing comments.

1:37:34

Sameer Soleja Absolutely. Thank you, Ben, and thank you to all the panelists on this call. We had a great conversation. Thank you to everyone who attended. We had over 200 people here today. And, I hope you enjoyed the conversation.

Our hope was to bring you some interesting things that folks are saying around the market and not to plug our software too much. We love what we do. At Molecule, we say "what we value runs the world." You know, we're very proud of what we do. And, we're very proud of what our customers, and the people more broadly in our industry, do. It's fascinating. It's interesting. And, I think the next 10 years will change the world, so let's get into it.

1:38:24

Ben Hillary Excellent. Huge thanks to Sameer, and brilliant, massive, massive thanks to all of the panelists for their insights today. And, a huge thanks to the audience for joining.

Just a few notes. The webinar recording will be sent via email to everyone in the next 24 hours. If you found it of interest, please share with everyone. Share with your colleagues. Share on LinkedIn with your wide network.

If Sameer, myself, or any of the panel can be of any assistance, or if we've touched on anything you'd like to explore further, do please drop us a line.

And again, many thanks. Audience, panel, you've all been fantastic. And,wish you all an excellent day or evening ahead. Many thanks.