Energy Discussion

Energy Discussion

Explain how; when investing in the energy sector, one can manage

energy risks?

The fundamental goal of investing in any company or industry is to maximize profits and develop the organization’s operations. The energy industry is one of the most critical sectors across the globe and end up attracting numerous investors. Energy companies now play an essential role because society has become dependent on gas and oil services (Rodrigue et al. 2018). We can see that this sector is an important business for the 21st century because it offers us a lot of services and goods that we need for our lives. However, understanding the risks associated with the industry and how to manage them is a critical aspect to consider before investing. Pricing is one of the most significant risks that is associated with the energy sector because firms can have a hard time establishing the rates of profits and revenues as oil and gas prices fluctuate constantly..

Companies are unable to determine whether the returns from energy sales will cover the costs incurred in exploration and other expenditures. Typically, when commodity prices fall, the energy sector is forced to reduce oil refineries and exploration, reduce the number of employees and force cost cuts across the production chain (Wu & Hu, 2019). Even though the supply chain risks in the industry are becoming more challenging, risk management has been advanced in the industry due to the development of big data management, artificial intelligence, improved analytics, and machine learning. The demand for oil and gas is also stable and developing regardless of the extensive use of renewable sources of energy because many countries across the globe rely on petroleum and its byproducts to conduct their daily activities.

References

Rodrigue, D. N. S., Jiao, J., Emilienne, L., & Alberic, M. D. (2018). Research on the investment strategy of new energy projects. In IOP Conference Series: Earth and Environmental Science (Vol. 170, No. 5, p. 052003). IOP Publishing.

Wu, C. M., & Hu, J. L. (2019). Can CSR reduce stock price crash risk? Evidence from China’s energy industry. Energy Policy, 128, 505-518.