Intertwined: the physical and the financial: Commodity risk in the oil & gas, power utility and mining sectors

The hard-hat world of the oil and gas, power utility and mining industries and the hard-ball world of financial trading have progressively become more intertwined. In the past five years, in particular, the interplay between these two worlds has increased in both extent and complexity.

Greater liquidity, increased participation of financial players, new types of exchanges and new types of commodities, such as emission rights, have all contributed to the growing importance of the use of financial instruments and, in some sectors, trading.

The increase in commodity trading in markets affecting oil and gas, power utility and mining companies has an impact on short- and long-term contract prices, on price volatility, on the choices faced by end-customers and on the regulatory landscape governing markets.

Intertwined: the physical and the financial looks at the new commodity risk challenges facing companies in the oil and gas, power utility and mining industries. It also looks at the specific challenges that arise within each of the industry sectors. Key questions such the role of trading and hedging within company strategies are examined as well as how best to get key building blocks such as organisational structure, tax, valuation and accounting right. Finally, we conclude by looking at what companies should do to embed effective risk management in this new environment across the whole of their company. The report also includes 'How PwC Can Help' page listing PwC services around commodity trading and risk management within EU&M industries.