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Lacima: Global Commodity Energy Portfolio Risk Analytics

Over the years, energy companies have evolved into complex organizations and today they operate in multiple geographies, commodities and currencies. On the one hand, margins are being squeezed and better portfolio optimization means greater profit and on the other, increased scrutiny means risk must be carefully managed–a simple approach to analytics is no longer good enough. Energy market participants must embrace a more sophisticated analytics approach to gain better insights into optimizing their portfolios. Lacima is a specialist provider of portfolio optimization, risk management and valuation software and services for energy and multi commodity trading organizations.

“With time, energy markets have evolved and participants are more aware, like never before, of the risks they face. Although initially energy market participants borrowed solutions directly from financial markets, with increased sophistication of the industry they have realized that these solutions don’t address either the dynamics of energy commodity prices, or the complexities of energy portfolios. Our solutions are built to analyze the risk of physical assets and financial contracts at a portfolio level for a complete view of our client’s market risk,” comments Dr Chris Strickland, Co-founder of Lacima.

Lacima’s flagship product, Lacima Analytics is an open framework architecture that addresses a variety of client needs. There are three main examples of how Lacima Analytics is applied. First, it can be applied to optimally determine cash-flows for an individual asset, or more importantly, an entire portfolio of assets and contracts. Through this optimization, management obtains critical information to help them to make hedging decisions to improve efficient use of their physical assets. This may include the timing of actions to reduce costs and therefore maximize profits. Second, it can be applied to valuation projects for trading or investment purposes. Clients may wish to value a physical asset, such as a gas storage facility, for mergers and acquisition purposes or may need to value financial contracts to enhance the assets risk/ return profile. Third, Lacima Analytics is used for key risk management reporting purposes. With the increased scrutiny of regulators and credit agencies, improved risk management is a critical area of concern for many organizations.
Lacima Analytics’ risk metrics and modelling takes into consideration the unique behaviors of energy prices, the complexities of financial hedge contracts and the operational constraints of physical assets, enabling users to have the best understanding of the uncertainties they face across their portfolios and therefore enabling them to risk manage more effectively.

A key feature of Lacima Analytics is its ability to interface simultaneously with multiple Energy Trading and Risk Management systems meaning that existing deal and data capture systems do not have to be replaced. It has been successfully implemented in small, locally focused organizations through to those with global operations and over thirty systems requiring interfacing.

The company has worked with clients across varied industries around the world including National Grid and Puget Sound Energy in the U.S., Bruce Power in Canada, Scottish and Southern Energy in the UK and Energy Australia in Australia.

“The market is evolving, margins are getting squeezed and people are no longer looking at solutions that incorporate assets and contracts in a simplistic way that do not reflect their complex characteristics. The biggest challenge going forward is to have a better view of a portfolio as a whole and thereby optimize the efficient and profit maximizing use of assets, structure hedges, and reduce portfolio risks. Since the answer to all of these elements is better analytics, we are seeing an increasing demand for our solutions,” states Strickland.