I attended an Enterprise Risk Management Symposium in Chicago last week, and came away with a few impressions from comversations with the speakers there relating to energy companies and risk management:
1. Enterprise risk managemet (as defined by an company-wide risk management plan that looks at the various business lines, not just the trading desk) at merchant energy companies is a "vision, not a reality".
2. Banks are ahead of the curve, so to speak -- no surprise, given their prior experience in fixed-income and equities. Energy companies are improving, and showing a lot more interest.
3. Hedge funds view risk completely differently, and tend to embrace it. But that's not to say lots of hedge funds are primed to blow out. The only ones in danger are the smaller ones that have popped up, which might not have the deep pockets to survive a rough patch. In the meantime they will provide liquidity along the curve, and when one of them gets silly, the banks will profit some more.
4. Markets are much more developed, and can absorb a large blowup like Amaranth, where $6 billion was lost with barely a ripple, compared to only $2 billion or so with Long Term Capital Management, which roiled oil markets. Of course, that involved many more markets than just nat gas.
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