Liquidity forces energy firms to get creative with risk management

In some corners of the over-the-counter energy market, liquidity has become increasingly thin during the past few years. As a result, firms need to think more creatively about how they handle liquidity, say risk managers. Stella Farrington reports

For firms trading in the over-the-counter energy markets, liquidity is a risk like no other. Even in cases where companies have a watertight risk management programme and a deft hand on market fundamentals, a sudden shortage of liquidity can quickly erode the value of their positions and impair their ability to respond to events. For such reasons, periods of sharply diminished liquidity are often the stuff of nightmares for risk managers.

While managing liquidity in the energy market has never