Committee of Chief Risk Officers 8000 Research Forest Dr. info@ccro.org STE 115 #278 http://ccro.org The Woodlands, TX 77380 6 Advancing Our Energy Industry’s Risk &Compliance Best Practices Anderson: Potential exploratory initiative number four is “sizing-up the prize”. It often helps regulators to understand and appreciate why industry standards can be a very beneficial thing, yielding large scale benefits for their area of oversight. The CCRO as an industry group could conduct some research to provide high-level perspectives on the upside for our industry given recommendations or standards in-place, versus the current scenario lacking such guidelines. One example of our work of this broad nature, was our paper on Market Clearing in the Energy Industry. It helps regulators to understand why industry standards can be a very beneficial, yielding large scale benefits for their area of oversight. Typically, this type of work takes shape with a structure something like “Here's how we are doing things today and this is the dollar amount that’s either at risk or that's otherwise tied up and unavailable for industry to invest in business growth. However, if we can follow these industry recommendations, it will release this money or perhaps it will reduce the burden on government to guarantee things. We can bring in new risk mitigation instruments, set collateral guidelines, maybe a set of recommendations to implement. In any case, there's a lot we can do to quantify what's in it for everybody if the industry can come together and improve itself in the long run. I am hoping that some of our Advocate members might be interested in helping with this LNG market research, even contributing some work they may have already done. The research itself does not have to be a burden for members, it’s more critical to get members to rally around the recommendations that emerge. 4) “Size the Prize” for LNG Industry • What benefits would the LNG industry gain if risk management were more effective? • (We can use the legacy CCRO paper on clearing as an example) • Identify the current roadblocks to risk management in LNG • (vs. Nat gas or crude for example…) • What solutions could be envisioned? • Would yield what benefits ?• Release how much risk capital currently tied-up where? • Favorable impact on margins? (cash) • Subsequent increased liquidity would • Reduce estimated holding periods reqd for risk measures? • Advance LNG option markets ?• (more flexible hedging strategies) • Could increase willingness to invest? • What role does the regulator play? www.ccro.org 6 Objective: CCRO publishes a white paper overview of these benefits identified. Doc is a catalyst for new initiatives and to motivate industry to take associated constructive action… Given Access to Better Risk Mgt Practices