Altra Streamlines Electronic Trading, Buys QuickTrade
In an effort to boost liquidity at trading points, the
industry's two major electronic energy trading systems, Altra
Streamline and QuickTrade, announced last week they will become one
system by the end of the year, possibly sooner. Altra is buying
QuickTrade and QuickTrade Canada from subsidiaries of Dynegy,
Sempra Energy and Nicor for an undisclosed sum.
The transaction "will create the world's largest electronic
forum for conducting physical energy transactions," said E. Russell
(Rusty) Braziel, Altra's chairman. But some traders worry the deal
could lead to higher rates and fewer upgrades and innovations.
The combined system will handle 5-6 Bcf/d of gas, 500,000 b/d of
liquids and a small but growing amount of electricity for a total
of about $6 billion/year in energy transactions.
The two systems are similar from an operational and
technological perspective so combining them will not be that
difficult, said Braziel. Both Altra's and QuickTrade's trading
applications provide real-time, anonymous, electronic trading
forums and clearing services for energy deliveries. Both also
provide client software, trading and brokering services via TCP/IP
network connections through the Internet or the companies'
QuickTrade President Brian Soutiere said the Department of
Justice and the Securities and Exchange Commission already have
reviewed and approved the transaction. He said the DOJ concluded
"there are many competitive alternatives for parties who transact
gas to use, and any other competitor with [an electronic trading
system] could enter the marketplace."
QuickTrade has only one other electronic trading competitor: the
Natural Gas Exchange (NGX), which is owned by Westcoast Energy and
actually dominates the electronic trading market in Canada with
about 4 Bcf/d of gas traded on its system by up to 150 traders. One
interesting aspect of this transaction is that Altra, a longtime
partner with NGX now becomes a competitor through its purchase of
QuickTrade. NGX and Streamline have been exchanging information for
years but probably won't be doing that much longer. Altra's Matt
Frye said, however, the companies hope to work out an agreement
with NGX that is "mutually beneficial" over the next few months. He
NGX's Peter Krenkel said it is too early to tell what could be
negotiated, but he didn't rule out a deal that would include buying
QuickTrade Canada. NGX already holds 80% of the electronic trading
market in Canada and could handle up to 20% of the entire physical
wholesale market north of the border.
"[QuickTrade and Streamline] have hundreds of trading points
across the U.S. and Canada. We only have two key points [AECO and
Empress] that are very liquid. It's a different business
philosophy," said Krenkel. "They are motivated to add liquidity. In
December, we had 138 Bcf traded at our two points. That's about
equivalent to what they had traded at their 140 points combined."
Soutiere admitted the most important reason for the transaction
was to boost liquidity. "The real value traders get from these
systems is the ability to buy or sell their gas at the market
price, and they can only do that if there's a market. Combining the
two will enhance the liquidity at the trading points and thereby
provide the marketplace with greater value, better price discovery
and a better ability to buy or sell."
The two companies expect an increase in system usage simply
because there will be one single platform for the entire U.S. gas
industry. "We think that will probably increase liquidity at not
only the points where we're strong and they're strong, but other
points as well," said Braziel. Chicago and the Henry Hub are
expected to be the two most liquid points on the new system.
Trading Systems Growing in Popularity
Electronic energy trading systems have gained in popularity over
the past several years following a slow start-up in the market. All
of the trading systems were launched in 1994. Last year was a boom
year. All three systems reported near 50% volume growth.
QuickTrade now carries more gas volume across its system than
Altra, but Altra handles more total energy, including gas liquids,
crude oil, power and gas, according to Braziel. QuickTrade's gas
system is used by over 400 wholesale traders and enables physical
forward trading at over 140 locations. Its major trading centers
are in the Midwest, Appalachia, the western U.S. and Alberta.
Altra's Streamline (gas and power) and Chalkboard (liquids) systems
together serve more than 350 energy commodity traders. Streamline's
most liquid gas trading points are located in the Southwest and the
U.S. Gulf Coast.
Soutiere calculated that Streamline and QuickTrade combined
could handle up to 10% of the North American gas market but more
likely would handle less than 5%, an amount which clearly could not
be considered a major market concentration.
Nevertheless, news of the Altra-QuickTrade combination irked
some traders. "I liked the competition they had," said one Gulf
Coast gas marketer. "People have become much too dependent on the
trading systems. It's like they won't do a [fixed price] deal
unless they can verify the price on one of the [electronic trading]
"I wish we had two systems," said another marketer. "We have
both systems in our office and utilize both systems. Altra buying
[QuickTrade] is kind of like Jonah swallowing the whale in my
estimation." One trader said the combination was "inevitable"
because electronic trading has a well-defined niche in the
"We are still only a small piece of the overall energy
industry," said Altra's Braziel. "If people are not happy with our
service either because of performance, price or anything else,
they'll do business over the phone or through cash brokers. So the
combined entity is going to have to be both price competitive and
performance competitive with all the other alternatives available."
When the combination is consummated, which is expected by the
end of the month, the new entity will begin working on a hybrid
system that combines the best of both. The hybrid is expected to
come out in 90 days but be replaced by a "next generation" system
by the end of the year.
Officials from both Altra and Streamline indicated the company
may go public sometime soon after the combination is complete.
Altra Energy is owned by its employees and two venture capital
companies, Battery Ventures and Austin Ventures, which purchased
the company from Williams Cos. and Duke Energy on Sept. 5, 1997.