Consolidation Predicted for Online Trading
The energy online marketplace is crowded, confused and on the verge of shaking out and consolidating, according to three who should know, two CEOs of successful trading platforms and a Nymex executive, who yesterday shared their predictions at the Energy RiskTech Conference in Houston.
Rusty Braziel, founder and CEO of Altra Energy Technologies; Vincent DiCosimo, CEO of RedMeteor.com; and Neal Wolkoff, executive vice president of Nymex, shared a panel discussion on the future development of electronic energy exchanges. While all seemed confident of the future of their own enterprises, they acknowledged that the growing number of players in online energy trading today has made for an oversaturated marketplace.
"Clearly, liquidity has been achieved in the online environment," said Braziel. "But it's a confused marketplace. The big question is when is there going to be a shakeout, and how many do we need? What is the future? Will it be the independents or the proprietary platforms that succeed?" Answering his own questions, he said, "frankly, I don't have a clue."
Within five years, though, Braziel predicted that the market would become more digital than it is today. "We are seeing more complex transactions on line and they will become more complex in the future and a significant amount of them will be digital."
Braziel said that a more networked market would allow information to become more integrated, and there would be more transactions across different platforms. The "Holy Grail" would be obtained when redundant information is eliminated and the amount of mistakes made online is reduced.
In a sideways reference to the overwhelming market response to EnronOnline, Braziel said that in his view, "in the next two to three years, the market will support a number of different platforms, but the market will not tolerate a significant single provider. What we do see are more transactions, more liquidity."
However, Braziel does see a smaller pool of online traders, which won't occur without some "fallout," though. "There will be more alliances, more integration in the marketplace. RedMeteor.com's DiCosimo said that it seemed as if new trading platforms were "arriving daily." At his company, he said, the trading is not built around the Website, but rather, around the business itself.
"The marketplace doesn't care in the end how quick it is," DiCosimo said of online trading. "It doesn't matter what color the Website is. At the end of the day, it's got to make you more money."
But he also sees the online traders becoming fewer. "I see a collision taking place in the market between the Internet, bandwidth and commodity trading," said DiCosimo. "There are still more opportunities, but it's not an end all, simple adaptation of the marketplace."
In fact, DiCosimo said that while energy online trading has grown, it would never replace the "human event."
"This conference could have been webcast," he pointed out, "but the human event is very important. It is key to success in today's marketplace." While the door is opening for "people who never thought of trading before," online or not online, DiCosimo also predicted there would be fewer online trading players by this time next year. "I would have said it would take a year, but now I'm thinking it could be a few months before we start seeing more alliances."
Nymex's Wolkoff said that he also expects some sort of meltdown to occur within the online trading market, but he also predicted that it would remain strong, no matter its size. "It's appropriate to have a healthy respect for the technology. These are useful tools. But it has to be looked at for what they can provide in the real world, not the virtual world." Wolkoff said that Nymex is attempting to use the lessons learned from other successful online traders as it prepares to launch its own e-commerce platform.
Wolkoff said that if technology was the entire "solution" to energy trading, there would be "20 pure success stories. Clearly, we don't have that many now. And a year from now, maybe we'll see 20 new success stories." He predicted that "most" of the online trading systems will cease to exist, and if even "two or three exist a year from now, it will be a bit of a surprise as to who made it."
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