With volatile swings and record high prices over the past few years, the segment that "Enron made famous -- energy trading -- is springing to life again," according to a new report by Dublin, Ireland-based Research and Markets.
In its B2B Energy Trading Markets report, Research and Markets said recent trading activity has "renewed interest" from investors "eager to play in the sector," which has pushed banks and a growing number of hedge funds to hire more energy traders and "brainy quantitative minds" to back their bets on energy prices. As a result, a scramble for top trading talent has ensued that rivals the cutthroat hiring frenzy of the late 1990s, the report stated.
"The entire market is hot right now and everybody is talking about expansion," Research and Markets said. "However, with the revival come questions from some financial market analysts about whether energy trading will be able to withstand another potential meltdown. While banks have stepped in with their superior balance sheets, credit ratings, and trading skills to fill the liquidity void left by Enron, the latest ramp-up in trading has also been marked by an air of secrecy underscored by the proliferation of hundreds of hedge funds that are speculating on everything from crude oil to electricity in both regulated and unregulated markets."
Research and Markets noted that many of the funds are being aided by investments from banks, which are also buying up distressed power plants and other remnants of the collapsed sector.
The report found that the journey to more liquid energy trading marketplaces is proving to be a turbulent one. "While the expectation was that a highly liquid and transparent market would develop, the reality is that globally, the gas and electricity markets do not yet provide the necessary liquidity and transparency," the report finds. "The current climate will place a high burden of proof on companies to adequately disclose the risks and performance of their energy trading operations. This disclosure is not just to shareholders and the wider capital markets, but also to politicians, regulators and energy consumers."
Research and Markets noted that convincing stakeholders becomes even more critical against a background of complex market change. While the direction of change is relatively certain -- towards open markets and customer choice -- the exact shape and the rulebooks are evolving.
In addition to issues and challenges facing the industry, the report also analyzes the various types of trading available and the impact of trading on the overall energy market. For more information, visit Research and Markets' website at http://www.researchandmarkets.com/reports/c48888.
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