Creation and Transfer of Price Risk in European Energy Markets

The Professional Risk Managers' Guide to the Energy Market, PRMIA, 2007

21 Pages Posted: 10 Dec 2013

See all articles by Alessandro Mauro

Alessandro Mauro

MKS; University of Geneva - Geneva School of Economics and Management

Date Written: December 2007

Abstract

The impact of high energy prices on world economies is due to a risky environment that has been in place for several decades.

In this article we try to explain the nature of this environment, by assessing a broad identification of risk in an entire economic system. The aim is to perform the kind of extended risk mapping commonly done for enterprises in order to better understand why, where, and how risk is generated, how it is transferred among agents and transformed, and who ultimately bears such risk.

Topics include the creation of price risk, the ways such a risk is transferred both contractually and financially. The impact of policy and regulation is discussed. Many real examples from energy markets (oil, natural gas, electricity) are introduced in order to support the theoretical discussion.

Keywords: Price risk, Energy prices, Crude oil, Natural gas, Coal, Electricity, intra-fuel competition, Refining margins, Decoupling, Oil-indexed prices, UK gas, Benchmarks, Energy Exchanges, Commoditization, Financialization, J.K. Arrow, Emission trading, regulatory risk

JEL Classification: Q43

Suggested Citation

Mauro, Alessandro, Creation and Transfer of Price Risk in European Energy Markets (December 2007). The Professional Risk Managers' Guide to the Energy Market, PRMIA, 2007, Available at SSRN: https://ssrn.com/abstract=2365179

University of Geneva - Geneva School of Economics and Management ( email )

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