Energy & Commodities 2023 insights

With volatile geo-politics and increasing climate-related turbulence, 2023 has seen markets across sectors oscillate from one extreme to another, and nowhere has this been more evident than within Energy & Commodities (E&C). Leading energy distributor China saw the lifting of zero-covid policies, several European countries suffered nationwide climate-related fires, and the continued war in Ukraine have all contributed to “increased upside risks to baseline price forecasts for 2023” (Economist intelligence: commodities outlook 2023).

Climate continues to be on the forefront of business’ minds, having played “a major role in commodities in 2022 and […] again in 2023. Scorching heatwaves hit production of wheat in the northern hemisphere and the increase of extreme weather will be detrimental for crop production in the first half of 2023” (EIU: what to watch in commodities in 2023). Yet, despite the quantifiable evidence that sustainability needs to also be at the forefront of business’ decisions, S&P warns: “carbon policy may be overshadowed by the energy market” (S&P: Commodities 2023: China's carbon market to slow in 2023 as energy security, economy take priority).

In the UK, energy price inflation has been the highest among G7 economies as of March 2023(ONS: food and energy price inflation UK 2023) with “complexities around balancing grid capacity and storage, along with the emergence of smaller-scale asset generation sources, creating pressure on electricity grid systems and threatening to slow the renewable power expansion” (Deloitte: Energy & Resources M&A market outlook -Q1 2023). Despite such concerning statistics, the E&C sector continues to report growth, with businesses capitalising on new sales models and adapting to change with evolving policy.

We interviewed Luke Almond, Business Manager for Financial Services at IDEX Consulting for his insights into 2023 trends.

What trends are you seeing across the E&C sector at the moment?

At the moment, data is near-enough the richest resource a business can accumulate, and as a result we’re seeing increasing investments in value chain modernisation. Digital Business Transformation (DBT) continues to be vital to the success of energy and trading companies.

Publicis Sapient note that “a unified, predictive data ecosystem across the oil and gas value chain results in […] untapped growth opportunities. Retailers benefit from optimizing their value chain as they go on to develop a range of innovative products and services, customized specifically in accordance with their customers’ needs.” (Guidetonext: DBT: the must-have trend in 2023). Customers are increasingly less tolerant of blanket policy, and as a result we’re seeing more demand for a tailored approach from energy companies especially.

What are the main challenges for businesses in this sector?

While the race to Net Zero continues, businesses are seeing challenges. Given how evident the effects of climate change are, consumers are increasingly demanding sustainable energy; but energy companies are struggling to supply. When it comes to reducing the world’s carbon footprint, no single solution scales beyond the 5-10% range. Solar and wind can’t meet consumer demand and hydrogen value skyrockets, with sourcing it being high in cost. Publicis Sapient go on to advise: “as we continue to see companies invest in energy transition and prepare for the future, we also need to see the conversion of conventional and alternative fuels, including carbon, into a single system.”(Guidetonext: all roads lead to decarbonisation). At the moment, E&C companies are battling between aligning with the green ethics of their consumers and the need to hit Net Zero goals profitably.

Alongside this, a recent E&C report indicated that “48% of respondents [are] frustrated with the length and complexity of onboarding timeframes, highlighting the inability to maintain up-to-date counterparty information as the biggest hurdle” (Deloitte: energy and commodity trading sector: addressing counterparty lifecycle management). Companies continue to streamline business processes, and are investing in automation to optimise customer due diligence (CDD) expenditure, but this is a big project and results are slow.

Why are IDEX Consulting investing in this specialism / what opportunity does it present?

E&C is the cornerstone of global business. The volatile nature of the current market aside, there will never not be a demand for E&C and therefore businesses in the sector will always look to grow. Additionally, Deloitte report that “with ever-increasing focus on ESG as a significant criterion for investment, M&A in Energy & Resources will become a critical component to meeting international carbon commitments”(Deloitte: Energy & Resources M&A market outlook -Q1 2023), so now really is the time to focus on businesses within the sector - there is a strong demand for guidance for E&C businesses looking to merge or acquire.

What type of skills are employers particularly looking for when it comes to sourcing talent?

Employers are mainly looking to source professionals with a keen eye on current events and an ability to adapt to varying climates. For example from a climate perspective, countries that were once stable are seeing radical changes to their environment, and as a result economies are shifting at unprecedented rates; we need talent that can adapt to this changing environment, driving businesses through uncertainty and in the right direction.

What are employees looking for from businesses / what will make businesses in this sector stand out and attract the right talent?

Similarly, employees look for businesses with the tools to adapt to a technologically shifting climate. Personalised customer experience is at the forefront of E&C businesses strategy. Prolonged inflation and volatile energy markets have left consumers demanding more from E&C businesses. With such sudden changes, consumers expect customised products and solutions from providers, and because of that, employees rely on businesses that are able to use all the resources necessary to perform.

We’re warned that “energy companies will need to steer away from convoluted legacy billing systems to focus on modern SaaS-based billing platforms and more transparent online experiences, making for a satisfying end-to-end customer journey”(Guidetonext: personalised customer experience is the way to shine). Businesses need to ensure they have adapted to meet such demands, embracing automation and AI to allow employees to focus on increasing customer demands. As long as they offer all the current tools available to meet these increasing customer demand, businesses will undoubtedly have a constant supply of talent willing to work with them.

For further insights into trends within Financial Services specialisms, read more on the IDEX Consulting website

Sources:

Deloitte: energy and commodity trading sector: addressing counterparty lifecycle management

Deloitte: Energy & Resources M&A market outlook -Q1 2023

Economist intelligence: commodities outlook 2023

EIU: what to watch in commodities in 2023

Guidetonext: all roads lead to decarbonisation

Guidetonext: DBT: the must-have trend in 2023

Guidetonext: personalised customer experience is the way to shine

ONS: food and energy price inflation UK 2023

S&P: Commodities 2023: China's carbon market to slow in 2023 as energy security, economy take priority