Energy trading platforms TradeSpark, Intercontinental Exchange (ICE) and RedMeteor Inc. all recently reported that trading volumes on their individual platforms continue to head in only one direction…up. Online energy trading is expected to reach $3.6 trillion in 2005, fueled primarily by the growth of financial derivatives, according to a new report by Forrester Research. The report predicts several newcomers will eventually catch up to EnronOnline (EOL), the clear e-commerce leader in 2000, but several other independent exchanges could become casualties in the next few years.

Total online energy trading grew 750% in 2000 and reached $400 billion, led by EOL, noted Forrester’s Jim Walker, author of the report “Net Energy Hits Hypergrowth.” Enron CEO Ken Lay said two weeks ago that the company’s electronic trading platform had done $500 billion in business since going live in November 1999. Walker noted that other sites, such as TradeSpark and IntercontinentalExchange, face a tough road ahead in attempting to gain volume with EOL hoarding a large portion of the business.

“In the near-term it is going to be very hard to catch up with Enron because they have a commanding lead,” said Walker. “But in my view, over the forecasted period to 2005 there is time for ICE and TradeSpark to catch up. Enron will continue to be a major player, but it won’t be the only player to dominate the market as it did last year.”

Walker said there will be three phases of transition to a new market order, confrontation, resolution, and fortification. During the confrontation period (2001-2002), the Forrester report said sites like enymex and ICE will “race to erect sustainable businesses,” while energy companies like Dynegy will refocus their trading and reposition their private sites to capture customer sales. Stand-alone energy companies will likely drop their own site and join with a consortia.

The report forecasts that independent sites like Altra Energy Technologies and will come out as the “losers” of the confrontation period, being forced to sell their exchanges and redirecting their efforts to providing other energy firms with platforms for services such as physical scheduling, balancing and accounting. Walker predicts that independents will have to sell their exchanges to ICE or TradeSpark, then create and sell their customized platforms to software vendors such as Aspen Technology and Oracle. “These early Net leaders must build up their value by providing modular software tools that can be plugged into the offerings of larger software vendors,” said the report.

Altra Energy Technologies CEO Paul Bourke said while his first impression of the Forrester report was that the construction and flow was relatively well done, he did not agree with all of Walker’s conclusions or time frame. Bourke said he agreed with Walker’s prediction of consolidation, but said he expects it to happen over the next 18 months, as opposed to Forrester’s 12 month limit. “I am very comfortable that there will be consolidation within the marketplace,” Bourke said. “I could argue from my exposure to, and my experience in other practical markets, that the notion of consortium-owned businesses have ultimately failed.” There is something wrong with the idea of six competitors jointly owning an electronic exchange. The system has not worked in the past; maybe it will in the future, Bourke said.

“I look at the two sides of the bookends,” said Bourke. “I look at the Forrester report and it kind of makes me scratch my head and certainly makes me concerned, but the good news is I just read the initial draft of the next AMR [Research] report that looks at the world through a different set of eyes and it names Altra the number one exchange still.” AMR’s 2001 report is expected to be released within the next two weeks.

“If you looked at our growth ramps on the quarter to quarter basis, I would call them steady,” Bourke told NGI. “I think the best thing that ever happened to electronic trading in the energy space was EnronOnline because it kind of moved electronic trading in general into the corner office. So EnronOnline did more for the notion of electronic trading in its first three-to-six months than we had done in the proceeding four years.”

According to the Forrester report, the resolution period (2003-2004) is when the report says the major energy players will establish their market positions. NYMEX will transition current members to enymex and encourage vendors such as Bloomberg to build portals to the trading site. EOL during this period will continue to innovate new products, the report stated.

From 2004-2005, the fortification period will see the new market structure stabilize as participants begin to focus on the products and services that their marketmakers know best. Going forward, Walker believes there will be one hub, three merchant platforms, and about 30 other customized solution sites constituting the online energy market. As a result, the report forecasts that enymex will emerge as the sole liquidity hub, a central exchange aggregating high-volume transactions for a limited number of standard products, while ICE, TradeSpark and Enron will split merchant trading platforms for buying and selling energy to match assets to customer loads. “These merchant platforms will make up almost two-thirds of the industry’s total online trade,” the report stated.

“The big winner in the liquidity hub will be enymex,” said Walker. “That is because they have the central clearing and settlement that they can bring to the market. They can bring the integrity that is needed for a market that is exchanging price risk. In the merchant platforms, there is no question that Enron is going to remain a key player, but the two consortia — TradeSpark and ICE — have the opportunity with their marketmakers that are behind them to carve out their own place in the market. Then there won’t be very much room for anyone else.”

Bourke also disagreed with Walker’s “winner” prediction. “NYMEX doesn’t have a great record of launching innovative platforms,” said Bourke. They certainly have some people working on it at this time.” Bourke also said that NYMEX has a pretty broad OTC product offering, but that he did not know anybody who had gotten close to the organization that said it was an “innovative, fast-moving organization.” NYMEX launched and then folded for lack of interest an e-commerce site for natural gas several years ago.

Not only do sites such as ICE and TradeSpark have to divide transactions among themselves, but they must also span thousands of products at hundreds of delivery points, the report stated.

Despite EOL’s current dominance, some platforms continue to post strong volume increases. TradeSpark, a partnership of five U.S. producers/distributors, reported last Tuesday a 56% increase in its overall trading volume and a 90% increase in natural gas trading volumes during the first quarter 2001 over the fourth quarter 2000.

The TradeSpark exchange also announced it would begin breaking out overall product volumes and trading highlights on a quarterly basis. Since the exchange’s October 2000 launch, it has traded $30 billion (notional value) in energy products, $12 billion during the fourth quarter of 2000 and $18 billion during the first quarter of 2001 (see NGI, Oct. 2, 2000). The two most traded products during the first quarter were natural gas and electricity. Traded electricity MWh increased 17% over the prior quarter.

During the quarter, TradeSpark traded more than 2.18 billion MMBtu of natural gas instruments, (with a notional value of over $11.6 billion), and 120 million MWh of electricity instruments (with a notional value of about $6.4 billion).

“In three months we have more than doubled our overall trading volume and significantly strengthened our hold in the natural gas sector,” said Harry Fry, TradeSpark spokesperson. “Energy markets have experienced significant activity recently and we’ve certainly tapped into that. In addition, we’ve also seen a considerable increase in the number of users executing their trades electronically rather than by a voice-broker. This is a clear indication that TradeSpark market participants, now totaling more than 860 users, value the system’s easy-to-use screens, and superior functionality and liquidity. As TradeSpark is powered by eSpeed, energy traders now benefit from access to these markets via the Internet or over their private network — they’re simply finding TradeSpark a better way to execute their trades.”

TradeSpark also reported for the first quarter 2001 that its non-partner trading activity continues to rise. Participants other than the company’s founding members accounted for 53% of the exchanges gas revenues, almost three times that of the previous quarter. The exchange’s single day electricity trading volume high was 5.2 million MWh. The company also announced it has added the live trading of emission allowances and coal products in the beginning of March.

Another company that is reporting volumes through the roof is IntercontinentalExchange (ICE). This platform has also been exceeding previous volume records in the first quarter 2001. The exchange, which was founded in March 2000 (see NGI, March 27, 2000), reported that it set a weekly volume trading record of more than 370 Bcf of natural gas for the week ending Friday, April 6. The company previously announced that it had broken a single-day record on Wednesday April 4, with more than 97 Bcf of natural gas traded on its system. ICE added that about half of the week’s trades were at the Henry Hub, the remaining balance was distributed over an additional 16 other gas hubs. Since the start of 2001, ICE said 300 traders have participated on the exchange, transacting over 1,500 Bcf to date. The company said it currently holds about a 14% share of the North American natural gas and derivatives market.

On March 22, ICE announced that its platform notched another single day record on its power exchange, trading 4 million MWh in power. The company said the trading volume on that day was centered on the popular Cinergy Hub. The new record dethrones the one previously set on Feb. 27, when the exchange saw 3 million MWh in trading.

In only six months since going live with its full spectrum of over-the-counter (OTC) products, ICE has made a significant impact on the energy and metals markets. The company said over 42,000 trades have been made on ICE since it commenced trading with a combined notional value of $70 billion. Trading volumes on ICE have been growing exponentially with average daily volume in March up 33% from February.

Currently, ICE said its system is installed on 3,750 desktops worldwide from which traders log on every day of the business week to trade more than 600 listed contracts. Market participation on the exchange continues to expand at a rapid rate and currently includes over 200 of the world’s largest energy and financial commodity firms.

ICE has quickly staked its claim in electronic trading for OTC commodity products with current market share approximating 7% for global oil/refined product derivatives (42 active firms); 20% of North American power (39 active firms); 14% of North American natural gas and derivatives (34 active firms); and 8% of global precious metals (15 active firms).

Volumes on ICE continue to experience strong growth. Last month, volume levels for crude oil and refined products reached 168 million barrels; for power 55 million MWh; for natural gas 820 Bcf; and for precious metals 8 million gold-equivalent ounces.

RedMeteor joined the party last Monday, reporting that its Internet and voice brokerage services for crude oil and wholesale refined products — gasoline, distillate and jet fuel — had also recorded record results during the first quarter 2001. The exchange said the total volume transacted during the first quarter reached 185 million boe, exceeding a notional underlying value of $5.3 billion. Both crude and refined products notched record trading volumes during the time period.

The exchange, which turned a year old on April 3, also launched a new financial products platform during the first quarter (see NGI, June 26, 2000). The new platform allows customers to trade a variety of basis swaps and crack spreads utilizing the same technology as RedMeteor’s other platforms.

In the near future, RedMeteor expects to add clearing and risk management functionality to the RedMeteor exchange to help creditors reduce their credit exposure through position netting, as well as provide back office savings by transacting with a single counterparty. Visit their web site at

Entering the scene fashionably late is the much anticipated NYMEX energy trading platform. enymex is currently testing its exchange, and still expects to have the system commercially operable during the second quarter of 2001 (see NGI, Dec. 11, 2000). Nymex believes its exchange can succeed due to the added benefits of clearing services, a neutral, centralized marketplace, and having a highly sophisticated technological platform.

TradeSpark’s energy partners are Coral Energy, Dominion, Axia Energy, TXU Energy Trading and Williams Energy Marketing and Trading. Dynegy Inc. will be a future member. eSpeed Inc. provides the electronic marketplace engine and Cantor Fitzgerald adds voice brokerage services. For more information, visit TradeSpark’s web site at

ICE’s partners include American Electric Power, Aquila Energy, BP Amoco, Deutsche Bank AG, Duke Energy, El Paso, Goldman Sachs, Morgan Stanley Dean Witter, Reliant Energy, Royal Dutch/Shell Group, SG Investment Banking, Mirant (formerly Southern Energy), Totalfina Elf, and Continental Power Exchange — which provided the trading technology and management team. To learn more about the ICE, visit the company’s web site.

To acquire a copy of the full Forrester report, visit the company’s web site at

©Copyright 2001 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.