With international markets ever so connected and many places in the world facing energy insecurity, how do global oil and gas companies help ensure demand is met? One of the most important and relatively unknown ways oil and gas companies help stabilize and lubricate the energy markets, while optimizing their own flows and generating more revenues, is through their supply and trading businesses.

When Russia invaded Ukraine in 2022 and Russia was cut off as a supplier to much of Europe, traders played an important part in ensuring energy needs were met in the European continent and beyond. As proven in 2022, supply and trading plays and will continue to play a pivotal role in energy supply, both across traditional oil and gas products, but also renewables, while providing financial opportunity for those that have sophisticated trading desks.

My name is Nico Pooran, and I work with Oliver Wyman in New York focusing on Energy and Natural Resources. While earning my degree at Johns Hopkins in Applied Math, I became interested in the intersection of energy and financial markets which pushed me towards investment banking at Deutsche Bank where I spent the early part of my professional life at the intersection of those two worlds providing financing to energy and industrial companies.

Nowadays, I’ve shifted to corporate strategy helping our clients in the space grow their businesses while addressing some of the biggest market trends, such as the energy transition. One of my biggest areas of interest has been supply and trading within oil and gas companies because of its connection to the markets and commodities.

What I find interesting is that, historically, most people have thought of supply and trading as more of a risk management function. But it is so much more than that. With a strong supply and trading team, you can optimize your business across the value chain, whether it be by placing excess upstream production volumes or by supporting refineries with purchasing crude that is needed to meet downstream demand, and you can also gain a valuable profit center in your company that competes in a roughly $100 billion market.

But clients often ask what it takes to compete in the supply and trading space effectively. It requires a thoughtful strategy and organization design and a data-driven approach to trading that balances the sought-after return profile with the willingness to take risks. When supporting clients, we see many companies that are leading in the market elevate their trading organization leaders to senior executive roles, while also empowering the function with autonomy to shift trading strategies and test new markets and commodities.

Oil and gas companies that can do this effectively have been able to obtain more than 10% and, in some cases, up to 20% of overall group profits through their trading businesses and have even been able to outperform some commodity trading houses. Other players that have seen the upside in recent years and acknowledge the increasing critical role trading will play have announced plans to either create or revamp their global trading divisions.

Now, beyond financial incentives, many oil and gas companies are considering embedding trading into a core part of their longer-term strategy given the effects of the energy transition. Over the next decades, there will be an influx of commodities entering the market that will disrupt supply and dynamics globally. At the same time, oil and gas companies will see their business shift away from fossil fuels as consumers demand more and more renewable energy.

The winning oil and gas companies that will be able to navigate this paradigm shift are those that build trading desks that are agile, constantly evolving, and willing to take risks while moving new commodities across the world. In the past 10 years, we’ve seen a step change in the energy industry, but the best is yet to come. I’m excited to see two of my greatest interests come together in supply and trading as we usher in the next era of the energy industry.

I’m Nico Pooran, and this is my take on risk and trading.