Energy merchant markets are predicted to grow 30% between 2002 and 2006, with oil and natural gas majors and financial service firms dominating the market, while asset-based traders — particularly in power — reengage, according to a report by Massachusetts-based Energy Insights. On the horizon, the study predicted there will be even more participation by financial institutions between 2008 and 2010.

According to “Catch the Wave — Energy Trading and Risk Management in 2005 and Beyond,” energy trading in liquid hydrocarbons will continue to be robust, buoyed by high prices and increased volatility, as trading in power and gas continues to recover from the post-Enron decline. The study mirrors results noted by NGI in its latest quarterly energy marketing survey (see Daily GPI, June 27).

“Elevated prices and increased instability in energy commodity are driving increased activity in energy trading and risk management,” said Jill Feblowitz, program director for the research firm’s Energy Wholesale Strategies research program. “For the last two years, IT investments have shifted from the front office to the middle and back offices, mostly in response to regulatory pressure. Although this focus is likely to continue throughout 2005, additional trends within the industry indicate a swing of the pendulum away from risk avoidance and toward revenue opportunities.”

Energy Insights said that for users of technology to take advantage of the growth in the energy market, they should make an effort to understand how best-in-class companies, which may be their competitors, are using technology to their advantage. Technology users will want to assess how wide the gap is between themselves and their competitors as well as what it takes to close the gap.

The study suggests that success in the new energy trading arena depends on the importance of easy integration of applications with products from other vendors, especially enterprise resource planning systems. Although application suites are attractive to energy trading companies with small trading volumes, Energy Insights said they are not complex nor complete enough to meet the needs of integrated utilities and integrated majors.

Included in the report are current business and regulatory conditions that shape trading and risk management. There also is guidance. The study examines the current business and regulatory conditions shaping energy trading and risk management. The document starts by defining the energy markets, the market players, and the various strategies companies are taking to succeed in this market. Also discussed are the business processes that are the foundation of energy trading and risk management. A review of advances in technology that will strengthen the energy markets is provided. Finally, essential guidance for trading companies on where to focus their attention when examining their business and supporting technology and for vendors on where to target product development and marketing strategies is included.

For additional information about the report, Document EI10043, contact Paul St. John at (508) 935-4760 or email

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