Williams, Dynegy Join Internet Trading Bandwagon
The proliferation of energy trading Internet sites continued last week with Dynegy and Williams teaming up to invest $25 million each for a minority equity stake in eSpeed Inc., an interactive electronic marketplace engine for business-to-business (B2B) e-commerce. It's another sign the energy industry's migration to e-commerce is speeding toward an eventual shake-out. Right now, players are beginning to place their bets on who the winners may be.
Nancy Gustine is director of e-business for Williams Energy Marketing and Trading, which recently made an investment in trading site HoustonStreet.com (see NGI March 13). While she said the company sees other e-commerce opportunities besides energy exchanges, "at this point I think we're just going to sit still with what we have [eSpeed and HoustonStreet] and see what the market does."
A report released last week by Global Change Associates, titled "Electronic Energy Trading," makes a pretty plausible prediction for the near-term future. "The intense competition now underway will lead to a period of consolidation and electronic platform dominance by the end of the year 2000," the report says. "It is too early to determine the winners of that competitive process at the present time."
Since the first edition of the Global Change report on electronic trading was published in December, more than 30 new platforms have been launched. The latest report includes recent entrants Redmeteor.com and IntercontinentalExchange, for instance. Other notables in the energy e-commerce race are Altra Energy Technologies, NYMEX and EnronOnline, which only offers Enron commodities.
Williams and Dynegy are betting the neutral site is the way to go. That is the eSpeed-operated site will offer commodity from both companies as well as that from whoever wants to participate in the venture. "Our perception is that the neutral exchange is where you want to be," Gustine said. "It's run by the market operator, not by Williams, not by Dynegy. It creates the anonymity and neutrality of that site. eSpeed is the operator. [With EnronOnline,] they're always the counterparty. They certainly are a market-maker, but it's not a neutral site."
The Williams- and Dynegy-backed eSpeed technology will serve as the platform for at least four commodity-specific electronic spot and futures marketplaces in which the marketing subsidiaries of Dynegy and Williams will participate. Trading could include natural gas, electricity, natural gas liquids, petrochemicals, crude oil and bandwidth. eSpeed anticipates that an electronic marketplace for gas and electricity will be made available to market participants, such as Dynegy and Williams, in the third quarter, with the development of additional marketplaces by the end of 2000.
eSpeed operates global electronic marketplaces for low-cost, instantaneous trading of financial instruments and other products. The eSpeed proprietary software is scalable to accommodate additional trading instruments and commodities.
"The future of commodity trading is in neutral electronic marketplaces," said Dynegy CEO Chuck Watson. "After months of careful evaluation, we concluded that eSpeed with its proven state-of-the-art technology, along with its track record of developing marketplaces in the financial arena, is the ideal partner to develop the energy and bandwidth marketplaces of the future. eSpeed technology can be applied and scaled to accommodate other energy commodities. We welcome and expect to attract multiple industry participants to achieve the liquidity necessary to create a robust, neutral exchange."
The topic of e-commerce in energy has become a familiar one over the last several months as new trading sites are announced weekly. Perhaps the most notable announcement, at least one of the first ones, was for EnronOnline. Enron announced its online offering late last year, saying it eventually would be able to transact deals in any commodity it plays in worldwide.
In a conference call, Williams CEO Keith Bailey said there is room for both exchanges such as EnronOnline and exchanges open to multiple sellers. "These are not mutually exclusive markets. There will be some markets that are adapting to the structured sorts of transactions that do have high specialization associated with them. But there will also be, in our judgment, a significant volume that lends itself to this type of exchange that depends on speed, ease of use, liquidity, neutrality and the low transaction costs that scale bring. They will both continue to exist, and I think of the type that lend themselves to the type of system that we're creating and the type of marketplace we're creating, this can and should become the marketplace of choice. But it will not cause the other type of business opportunities to go away."
"This is for the traditional, general transaction and for the commodities that we choose to include, Watson said. "This does not in any way replace or eliminate the requirement for Dynegy to have its own portal, to be able to customize those products and services for our customer, just like EnronOnline does for theirs." Watson said he expects his company, Williams and others to offer their own portals that offer customers greater customization of deals than what is available on a multiple-seller exchange. Other partners will be encouraged to join Dynegy and Williams, Watson said. The participation of other players will be structured to encourage increased utilization of the system, he added.
"Our system currently handles $150 billion of transactions daily," said eSpeed CEO Howard W. Lutnick. "It is designed so that virtually any product can be traded over our global network or the Internet. We are confident that we can quickly create multiple B2B marketplaces including energy, bandwidth, petrochemicals, crude oil and natural gas liquids that meet the needs of industry participants."
Joe Fisher, Houston
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