In an effort to boost liquidity at trading points, theindustry’s two major electronic energy trading systems, AltraStreamline and QuickTrade, announced last week they will become onesystem by the end of the year, possibly sooner. Altra is buyingQuickTrade and QuickTrade Canada from subsidiaries of Dynegy,Sempra Energy and Nicor for an undisclosed sum.

The transaction “will create the world’s largest electronicforum for conducting physical energy transactions,” said E. Russell(Rusty) Braziel, Altra’s chairman. But some traders worry the dealcould lead to higher rates and fewer upgrades and innovations.

The combined system will handle 5-6 Bcf/d of gas, 500,000 b/d ofliquids and a small but growing amount of electricity for a totalof about $6 billion/year in energy transactions.

The two systems are similar from an operational andtechnological perspective so combining them will not be thatdifficult, said Braziel. Both Altra’s and QuickTrade’s tradingapplications provide real-time, anonymous, electronic tradingforums and clearing services for energy deliveries. Both alsoprovide client software, trading and brokering services via TCP/IPnetwork connections through the Internet or the companies’extranets.

QuickTrade President Brian Soutiere said the Department ofJustice and the Securities and Exchange Commission already havereviewed and approved the transaction. He said the DOJ concluded”there are many competitive alternatives for parties who transactgas to use, and any other competitor with [an electronic tradingsystem] could enter the marketplace.”

QuickTrade has only one other electronic trading competitor: theNatural Gas Exchange (NGX), which is owned by Westcoast Energy andactually dominates the electronic trading market in Canada withabout 4 Bcf/d of gas traded on its system by up to 150 traders. Oneinteresting aspect of this transaction is that Altra, a longtimepartner with NGX now becomes a competitor through its purchase ofQuickTrade. NGX and Streamline have been exchanging information foryears but probably won’t be doing that much longer. Altra’s MattFrye said, however, the companies hope to work out an agreementwith NGX that is “mutually beneficial” over the next few months. Hedidn’t elaborate.

NGX’s Peter Krenkel said it is too early to tell what could benegotiated, but he didn’t rule out a deal that would include buyingQuickTrade Canada. NGX already holds 80% of the electronic tradingmarket in Canada and could handle up to 20% of the entire physicalwholesale market north of the border.

“[QuickTrade and Streamline] have hundreds of trading pointsacross the U.S. and Canada. We only have two key points [AECO andEmpress] that are very liquid. It’s a different businessphilosophy,” said Krenkel. “They are motivated to add liquidity. InDecember, we had 138 Bcf traded at our two points. That’s aboutequivalent to what they had traded at their 140 points combined.”

Soutiere admitted the most important reason for the transactionwas to boost liquidity. “The real value traders get from thesesystems is the ability to buy or sell their gas at the marketprice, and they can only do that if there’s a market. Combining thetwo will enhance the liquidity at the trading points and therebyprovide the marketplace with greater value, better price discoveryand a better ability to buy or sell.”

The two companies expect an increase in system usage simplybecause there will be one single platform for the entire U.S. gasindustry. “We think that will probably increase liquidity at notonly the points where we’re strong and they’re strong, but otherpoints as well,” said Braziel. Chicago and the Henry Hub areexpected to be the two most liquid points on the new system.

Trading Systems Growing in Popularity

Electronic energy trading systems have gained in popularity overthe past several years following a slow start-up in the market. Allof the trading systems were launched in 1994. Last year was a boomyear. All three systems reported near 50% volume growth.

QuickTrade now carries more gas volume across its system thanAltra, but Altra handles more total energy, including gas liquids,crude oil, power and gas, according to Braziel. QuickTrade’s gassystem is used by over 400 wholesale traders and enables physicalforward trading at over 140 locations. Its major trading centersare in the Midwest, Appalachia, the western U.S. and Alberta.Altra’s Streamline (gas and power) and Chalkboard (liquids) systemstogether serve more than 350 energy commodity traders. Streamline’smost liquid gas trading points are located in the Southwest and theU.S. Gulf Coast.

Soutiere calculated that Streamline and QuickTrade combinedcould handle up to 10% of the North American gas market but morelikely would handle less than 5%, an amount which clearly could notbe considered a major market concentration.

Nevertheless, news of the Altra-QuickTrade combination irkedsome traders. “I liked the competition they had,” said one GulfCoast gas marketer. “People have become much too dependent on thetrading systems. It’s like they won’t do a [fixed price] dealunless they can verify the price on one of the [electronic trading]boxes first.”

“I wish we had two systems,” said another marketer. “We haveboth systems in our office and utilize both systems. Altra buying[QuickTrade] is kind of like Jonah swallowing the whale in myestimation.” One trader said the combination was “inevitable”because electronic trading has a well-defined niche in themarketplace.

“We are still only a small piece of the overall energyindustry,” said Altra’s Braziel. “If people are not happy with ourservice either because of performance, price or anything else,they’ll do business over the phone or through cash brokers. So thecombined entity is going to have to be both price competitive andperformance competitive with all the other alternatives available.”

When the combination is consummated, which is expected by theend of the month, the new entity will begin working on a hybridsystem that combines the best of both. The hybrid is expected tocome out in 90 days but be replaced by a “next generation” systemby the end of the year.

Officials from both Altra and Streamline indicated the companymay go public sometime soon after the combination is complete.Altra Energy is owned by its employees and two venture capitalcompanies, Battery Ventures and Austin Ventures, which purchasedthe company from Williams Cos. and Duke Energy on Sept. 5, 1997.

Rocco Canonica

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