Call it a turnaround or call it a market correction, but whatever it is, the energy trading industry has pulled itself out of the mud and now is scrubbing off the dirt — but it may take a long soak in the tub, a panel of energy merchant veterans said Thursday.

At the Second Annual Energy Trading and Marketing Conference at the University of Houston’s Global Energy Management Institute, executives focused on what they see happening today, and what they believe still has to be done to revive the merchant sector.

Tony Rodriguez, director of financial trading for ChevronTexaco Natural Gas, said the biggest changes have been among the players. Nearly all of the former energy merchant heavyweights are gone, and instead, Rodriguez said the majors and the banks have become the heavy hitters. “There also are a lot of new entrants, the small, niche, regional players who bring in the cash markets.” ChevronTexaco became one of the new entrants, he noted. Until last year, Rodriguez had worked for Dynegy Inc., which had been ChevronTexaco’s gas marketer in North America.

Rodriguez believes a turnaround is “in sight,” but the landscape is completely different, with a shift by customers to companies with improved credit ratings and more hedge funds. “The credit requirements are immense,” he said, “and that is one of the obstacles. It may ease with time, but the prices are high, and the negative publicity has made it a hard sell.”

Robert Stibolt Sr., Tractebel North America’s vice president of strategy, wondered if the merchant industry should even come back. “I give a very definitive ‘yes,’ but this time, let’s get it right.” Risk management services are “desperately needed” in the energy trading arena, he said.

“At Tractebel, we bring a risk capital framework to everything we do. The ‘crazies’ of the 1990s were a disaster for the shareholder. This is not a knock on traders; I’ve worked with a lot of wonderful traders,” Stibolt said. “But the incentive pool was in the wrong direction. Some traders had an overblown sense of their own importance. I’m in favor of big bonuses, but it should be paid out for the right reasons.”

However, there has been steady progress. Stibolt noted the “significant price reporting improvements. Now it is a more disciplined, robust process.” But there is “unfinished business…we need not to retreat from deregulation and competitive markets. The old utility model was deeply flawed. A captive customer base is not the best way to manage risk.”

Cinergy’s Bruce Sukaly, the chief commercial officer, said, “the basic tenet still exists. That is, getting supply to market, either by transport or delivery of physical gas, and through risk management.” But he also noted the positive changes. “There is more rigor around the process, which is incredibly different, with more documents, credit, billing. Deal structures are simple and clear…complex, but cleaner.”

A turnaround is definitely in evidence, the Cinergy executive continued. “The volumes on Nymex have decreased, but they have remained strong. We have new market leaders. We have new entrants.” And there also is increased confidence in the market, with Cinergy seeing longer term transactions of five and 10 years.

Cinergy also has added jobs in its merchant unit. “Physical serves are essential and you have to get the product to the end user,” he said. “Cinergy has continued to grow, and we’ve added about 80 jobs in two years. There has been an increase in customers, more physical volumes and an increase in staff.”

©Copyright 2004 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.