Enron's collapse will change the way energy is traded

If an investment bank is picked to help revive Enron Corp.'s core energy trading business, a conservative turn is expected for an operation built on aggressive risk-taking and high volume.

Before its collapse, Enron was the world's largest energy merchant, accounting for roughly 25 percent of all trades in a market it helped pioneer. Enron differed from competitors in its penchant for complex bets on everything under the sun - advertising space, broadband, paper, the weather and more than 1,000 other products.

Investment banks that appear to have an interest in buying into Enron, such as UBS Warburg, would likely shed the gun-slinging attitude that permeated the trading desk of the former energy giant, analysts said.

``I don't think that's the culture most of these banks have,'' said Gordon Howald, an analyst who follows energy merchants for Credit Lyonnais Securities in New York.
William Hyler, an analyst with CIBC World Markets Corp. in New York, predicted ``a smaller version of the old Enron.''

The Atlanta-based InterContinental Exchange has reported significant gains in trading volume since Enron's demise. Intercontinental Exchange is off to a great start in 2002 with notional value of trades done on Wednesday January 9th topping $4.3 billion, which is an amazing seventy-five percent increase over December's average of approximately $2.5 billion per day, which was the record month for the year 2001.

``It's not like we're all sitting around here doing nothing now that Enron's gone,'' said Eric van der Walde, executive vice president of trading and marketing for American Electric Power of Columbus, Ohio. ``The market is just fine.''

Not everyone agrees.

Charlie Sanchez, who oversees the energy trading desk at Gelbert and Associates in Houston, said energy traders long for the enormous trading volume Enron brought to the industry with its appetite for risk and willingness to take on nearly every buy or sell order that appeared on its Internet-based platform, EnronOnline. ``I get frustrated now and then because I don't have the liquidity that I had in the past,'' Sanchez said. As a result, the spread between what sellers are asking and buyers are offering on other exchanges is not always as tight as it was on EnronOnline, a sign of less efficiency, he said.

But recreating EnronOnline will not be easy. ``Bridges were burned'' when investors and traders alike lost confidence in the company, Sanchez said. Whether EnronOnline ever gets off the ground, and in what form, remains uncertain.

John Olson, a securities analyst who follows energy merchants for Sanders Morris Harris Group Inc. in Houston, said any new partner would do itself - and energy markets - a favor by restoring the Enron of old, save for its controversial accounting practices.

But Enron's competitors are not wasting the golden opportunity that has come their way.

InterContinental Exchange has set record trading volumes since Enron and its state-of-the-art EnronOnline trading platform went under. That site was where Enron made markets by agreeing to buy or sell any of 1,800 commodities in which it traded.

InterContinental Exchange 's ICE electronic trading system is installed on over 8,500 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, weather derivatives, 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.

Based in Atlanta with offices in New York, Houston, Chicago, London and Singapore, Intercontinental Exchange is taking the technological revolution that occurred in international financial markets and extending it into global commodity markets.

Intercontinental Exchange is the owner of the International Petroleum Exchange of London (IPE), Europe's leading energy futures and options exchange. The IPE provides highly regulated open outcry and electronic marketplaces where industry participants use futures and options to minimize their price risk exposure in the physical energy market.