Altra President Dixie Barrett Paden said last winter’s high gas prices, competition from IntercontinentalExchange (ICE), TradeSpark and other electronic trading systems, and skyrocketing credit insurance costs since Enron’s downfall will force the company to shut down its electronic natural gas trading system at the end of this month. Altra informed traders of the decision in a letter last week (see Daily GPI, March 5). Altra also is talking with potential buyers about its successful Chalkboard liquids trading platform.

“We use credit insurance in order to offset any risk on credit for all counterparties. Basically it’s not feasible any more from a cost standpoint,” Paden said in an interview. “Ironically the industry probably for the first time sees the value of clearing services, but I don’t know that we could charge enough to offset how much the insurance has gone up. It may or may not be short term. We made a decision that it just wasn’t something we could afford to do.”

Altra, which launched electronic trading in January 1996, was the first physical gas trading system in the industry to provide clearing services. The system, which cleared physical gas transactions using credit insurance, reached a peak of about 0.5 Tcf/month in gas trades after Altra bought Quicktrade in January 1999. Financial transactions were brokered.

However, competitors EnronOnline, ICE and others drew transactions away from Altra at a time when insurance costs were rising rapidly. “EnronOnline was free. ICE is extremely inexpensive compared to what we charged and what we needed to charge,” said Paden. “We dropped our prices to compete, and now with insurance like it is, we just can’t afford to continue to do that.”

With gas prices topping $10 last winter, the cost of insurance went up exponentially, and the situation got significantly worse after Enron went bankrupt in December.

“We saw the opportunity for volumes to really increase post-Enron, but we had already made a decision to limit customer trading to day-gas in the prompt month, partly for us and partly for the insurance company to kind of see how this whole thing was going to shake out,” said Paden.

“Our cleared model is just too expensive for the market to bear right now. We looked at a brokered model and feel like there are probably too many exchanges right now out there for us to try to re-launch in a different mode.”

Unlike Altra, the recently announced EnergyClear is looking at a margining system using mutualization in which participating companies partly share the risk (see Daily GPI, March 4). With margining, companies put money up for mark-to-market risk and bear responsibility to maintain the exchange. In contrast, Altra took 100% of the credit risk on its system.

Altra shut down power trading in 2000 because of a lack of liquidity. Last October, Caminus bought Altra’s back-office software business with an eye on Altra’s new data management system, which is scheduled for launch this summer. Caminus said it expected to boost its revenues by 40% this year and gain a significantly larger presence in the energy software business with the purchase. Altra’s Chalkboard liquids trading system, which is not a cleared service, is all that remains.

“We are talking to some different potential buyers for Chalkboard. We don’t have anything done yet,” said Paden. “That’s our next decision.” About 120 companies use Chalkboard, which handles about 1.5-2.5 million b/d of gas liquids trading. Altra could survive with just Chalkboard, according to Paden, but the pioneer in electronic energy trading seems more likely to sell the platform and call it quits.

“We were the pioneers, and I very much still believe an independent mutual exchange is the best thing for the industry,” said Paden. “I think somewhere down the line that business model will prevail.

“It’s a strange time for the industry,” she said. “I don’t think anybody knows how any of us are going to shake out, much less on the electronic side. The Enron thing has put people in such a tailspin.”

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