Future Proof Operations: a tool for the Brazilian gas market

By Thiago Fukamati, Alvaro Oliveira, Caio Moura, Lucas Fonseca and Luiz Polozzi

This article presents the Future Proof Operations approach for companies in the gas sector, as well as the changes in the market.
In a more complex scenario, robust yet flexible operating models and effective risk models are essential for companies to manage present and future challenges.
Technological architecture must be aligned with the strategic positioning of organizations, enabling agile adaptation to regulatory and commercial changes.

The gas market in Brazil has changed. As a result of a series of initiatives, such as the New Gas Law and agreements like the CADE-Petrobras Termination Commitment Agreement, as well as state measures, various opportunities have arisen for the entire natural gas chain. At the same time, the sector is facing a major challenge: the difference in regulations between the federal and state governments, which affects the entire market, including traders, transporters and distributors.

In addition, new forms of supply and consumption have been explored, which impact and transform the way contracts are established. Faced with this reality, one of the main technological challenges is to manage these changes quickly, with a robust, integrated and secure architecture, while respecting budgetary limits.

It is in this context that the “Future Proof Operations” methodology was born. This approach, created by EloGroup, establishes an operational model to solve precisely these gaps. We will go into detail in this article, as well as presenting a practical use case.

What is the Future Proof Operations methodology?

Inspired by the “Future Back” model detailed in the book Lead from the Future, the Future Proof model encourages companies to define a clear vision for the future, identify market trends and assess how prepared they are to face the challenges ahead. Specifically for the gas sector, the methodology can be divided into three main cycles: Strategy, Transformation and Delivery.

STRATEGY

1 – Defining Strategic Positioning:

Establishing a clear and well-defined strategic positioning is crucial. This initial analysis generates insights that will help define the company’s value proposition, creating a solid foundation for the following steps. For example, for a natural gas marketing company, this involves defining what the strategic target markets will be, the size of the portfolio, as well as establishing risk and credit policies, among others.

2 – Exploration of Use Cases:

This phase involves a detailed analysis of the contractual and regulatory scenarios that directly influence operations. Here, it is crucial to identify the factors that add complexity to the business value proposition. For example, these factors may include the origin of natural gas, as well as the various delivery logistics options. It is also necessary to consider the profile of the customers served, their contractual specificities and the risk management instruments employed.

The analysis of use cases provides valuable insights into operational opportunities and challenges, guiding the definition of operational and commercial models to be discussed in the next phase. This stage also acts as a scope limiter, ensuring that all use cases are fully supported by the company’s operations.

TRANSFORMATION

Next, the strategic positioning and use cases need to be transformed into models that will support the organization’s operations. This is where the Transformation cycle begins:

3 – Designing the Operating Model:

In the Transformation phase, processes are established, people are allocated, and the organizational structure is configured to support the previously defined strategy, based on process management and organizational design principles. The operational model developed at this stage will be responsible for supporting all the processes linked to the prioritized use cases, based on the organization’s vision of the future.

4 – Designing the Risk Model:

This process ranges from identifying and managing current risk exposure to defining the desired target exposure. It involves drawing up possible action plans, using analytical methods to assess potential risk, and implementing mechanisms to align current exposure with the target. It also includes monitoring positions and market trends, as well as evaluating the performance of trading strategies. This stage is essential if the organization is to proactively manage risks and capitalize on opportunities in the complex gas sector.

5 – Evaluation of the Commercial Model:

Alongside the risk model, the commercial analysis includes modeling and simulating the various commercial conditions that affect the natural gas trader, transporter or distributor. This includes everything from defining the formulas for calculating commercial conditions and contract penalties to simulating operational parameters, such as unpredictability, and financial parameters.

DELIVERY

6 – Building the Architecture of Technological and Analytical Solutions:

According to the Pace Layered Architecture model developed by Gartner, the technology architecture should be modular and divided into three layers with distinct modification speeds: systems of record (slow changes, every 7 years or so); systems of differentiation (changes every 1 to 2 years); and systems of innovation (rapid changes, every 2 to 3 months).

The technological solutions planned to support the previous phases of Future Proof Operations will probably fit into the differentiation systems layer. This architecture allows for robustness to support day-to-day operation, while maintaining the flexibility to adapt to new regulatory and commercial demands.

7 – Specification and Development of Technological and Analytical Solutions:

Finally, the technological and analytical solutions are specified and developed. These solutions, whether transitory or definitive, are essential to support the operationalization of the identified use cases and provide the necessary infrastructure for the execution of the organizational strategy.

In short, this seven-step approach offers a detailed strategic and operational roadmap for players in the gas sector. Each step plays a crucial role in preparing organizations to face the growing complexity of the sector, enabling them not only to successfully navigate the volatile and complex environment in which they find themselves, but also to thrive amid continuous change. Below, we will explain how these steps can unfold in practice.

A practical case of applying the Future Proof methodology

Using natural gas marketers as a practical example, the Future Proof Operations strategic approach begins with the first stage, focusing on understanding the operation’s vision of the future. This vision guides the modeling of the use cases most aligned with the marketer’s supply strategy, considering the drivers identified earlier.

In the case of a fictitious trading company, the different drivers of the operation could include: Origination and supply (domestic natural gas or biomethane, for example), Logistics and gas transportation (including loading model) and Distribution and consumption (type of customer and consumption model). Thus, the drivers can be combined in multiple use cases, such as:

Sale of firm domestic gas, with inbound loading by the marketer and outbound loading by CDL (local distribution company); and
Sale of biomethane to a free customer with injection into distribution.

By delving into the contractual and regulatory scenarios for each of these use cases, it is possible to design the new operation. This includes establishing what the immediate priorities are (use cases with contracts already signed) and the future priorities, in which the marketer will need to develop an operational and commercial structuring plan.

With the operational model defined, the next step is to create the risk model. It facilitates the identification, assessment and mitigation of the operation’s complexity vectors, as well as revealing opportunities for action.

These models include identifying and managing current exposure, defining target exposure and the action plan, as well as simulating market scenarios, estimating returns and defining the potential risk of the operation using different analytical methods.

Once the operational and risk models have been solidified, it is vital that the trading company examines and refines its commercial strategy. To do this, various analyses and simulations of the commercial facets are carried out, considering penalties, costs, tariffs and other contractual terms with the various agents in the natural gas sector. This process provides practical guidelines for optimizing financial exposure and maximizing the organization’s profitability.

After designing the operational and risk models and the commercial assessment, the next phase involves identifying the technological and analytical solutions needed to sustain the operation. Depending on the organization’s level of maturity in relation to these solutions, it is essential to determine which should be transitional and which definitive. With a clear vision of the solutions and the application of the “Pace Layered Architecture” concepts, it is possible to outline, at a high level, the design of the solutions that will support the operation.

Here, the technological stack includes the tools that support: definition of communication interfaces, conceptual services for the natural gas marketing operation (management of demands and offers), manager and executor of accounts payable and receivable (ERP), etc.

Finally, all the solutions are specified, developed, approved and made available to the organization’s users. This ensures that the marketing company is well equipped to face the dynamic and complex environment of the natural gas sector.

Conclusion: a tool for a future vision of the gas market

The Future Proof Operations approach provides commercial and operational guidelines for companies seeking to adapt and thrive in the dynamic environment of the Brazilian gas market, based on the identification and characterization of use cases and the different drivers of business complexity.

Discussing technology architecture is just as important as discussing operational, commercial and risk models in line with the company’s strategic positioning. By adopting this strategic approach, natural gas marketers, transporters and distributors will be able to establish a robust and highly adaptable operating model, capable of meeting their short-term priorities and the necessary evolutions for the medium and long term.

Looking to the future, the gas market’s potential for evolution and the emergence of new challenges related to growth are apparent. However, with the right approach, companies can prepare for these changes and ensure long-term success. It is, therefore, recommended that emerging players in the new Brazilian gas market consider the Future Proof Operations approach as an essential component of their business strategy.

Want to know more about the Future Proof Operations methodology and how it can be applied to your business?