Continuing its rapid expansion into the void left by EnronOnline, IntercontinentalExchange (ICE) is making a move into the European over-the-counter (OTC) gas and power markets with the introduction of markets for UK natural gas-related products in December.
ICE has entered into agreements with a number of firms engaged in the sale and trading of UK natural gas: BP Gas Marketing Limited, Entergy-Koch Trading Ltd, Gaselys (the newly created Gaz de France/ Societe Generale joint venture), Powergen UK plc, Shell Energy Trading Limited, Scottish and Southern Energy Group, TotalFinaElf Gas & Power Limited, and TXU. The eight companies will act as a catalyst for the new platform by committing trading to support initial levels of liquidity to these new ICE markets. ICE successfully employed this strategy earlier this year in the U.S. natural gas market.
The exchange also has faced a wave of customer sign-ups as a result of Enron’s problems. A large amount of Enron’s business, including its European trading, went through EnronOnline, which was shut down for trading last week and resumed only partial operations in the last few days before the company filed for bankruptcy. Over the past two weeks, ICE transactions have risen by 65% as companies cut off Enron and looked to trade on alternative platforms. ICE also has a large backlog of companies waiting to be registered.
“Expanding into the UK energy markets is part of our overall strategy to become a global electronic marketplace for a broad range of cash, OTC and exchange traded commodity products,” said ICE CEO Jeffrey Sprecher. “With the initial support of these eight trading companies, I am looking forward to this being a strategic stepping stone towards a growing ICE presence in Europe.”
Initially, ICE will trade gas at the UK National Balancing Point (NBP), with potential future plans to expand rapidly into other European delivery hubs as they develop into liquid markets. Currently, ICE actively trades gas at over 100 US delivery hubs, including the well-known Henry Hub. Following the rapid rate of acceptance by the North American power and gas markets of the ICE daily price indices that were launched at the end of July, ICE intends to develop European gas indices as well.
“Europe’s energy markets are developing rapidly and the introduction of a robust and proven electronic system that offers such excellent services coupled with the promise of significant levels of liquidity is very welcome,” said Uday Narang, managing director of European trading at Entergy-Koch Trading Ltd.
Marc Lansonneur, business development manager for Gaselys said the move would help reduce transaction costs, support risk management and enhance competition and growth potential across the market. “Add to this the imminent capability of offering clearing services for OTC transactions, as well as the promise of an integrated trading platform for cash, OTC and futures transactions and we can look forward to significant improvements in the efficiency of European gas trading in the near future,” he said.
ICE’s electronic trading system is installed on over 7,500 desktops worldwide from which traders log on each day of the business week to trade more than 600 listed commodity and derivative contract types. Broadly, these include crude oil and refined products, natural gas, power, precious metals and emissions allowances. Contract forms include physical delivery as well as financially settled swaps, spreads, differentials and options based on a variety of fixed and floating price indices. ICE is based in Atlanta with offices in New York, Houston, Chicago, London and Singapore.
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