A Brief History of Energy Markets

Joaquin Narro and Monica Caamano

The establishment of organised energy markets followed the commoditisation of energy sources, including associated carbon emissions, through non-tangible environmental allowances. The ultimate goal of commoditisation was to manage the price risk associated with energy commodities, which was achieved with the contract standardisation of the underlying commodities, designed to help serve the needs of the stakeholders of the energy complex.

There has always been price risk associated with any commercial exchange of commodities. However, several historical milestones are intrinsically associated with both the emergence of some organised energy markets and the need to manage the associated price risks. Although energy commodities have been physically traded for centuries (think of coal or wood), it was not until the latter part of the 20th Century that the need to standardise contracts and manage risk became a truly global task, as demonstrated by the aftermath of the 1970s oil crisis. This crisis was pivotal to satisfying the world’s needs for standardisation and risk management.

THE 1970s OIL CRISIS

We intuitively identify energy with crude oil. This naturally occurring