Energyware.Net

Market Advisory Services, an energy and financial market consultancy, has launched energyware.net, a subscription-based web site geared toward energy companies, technology vendors, investment analysts and energy consultants.

The site helps users evaluate energy technologies from wholesale to retail, and from trading to settlement, with an emphasis on risk management. It includes interviews with market experts, market-trend briefings, vendor profiles, product reviews and industry surveys, along with merger-and-acquisition developments in the energy sector.

“Energyware.net will address a need for independent and objective analysis of energy information technology developments, and the implications and opportunities for market participants,” says Gary Vasey, senior vice president at MAS.

The site is offered on an annual subscription basis, and is maintained by MAS’s Houston offices. For more information, see www.energyware.net.

Oil Swaps On-line

Internet sites like Ebay and Amazon have proven how easy it can be to swap anything from stuffed aardvarks to zoot suits over the web. But even these megasites draw the line at, say, millions of barrels of oil. Now, SwapNet, a British Virgin Islands-based company, hopes to develop an Internet market for oil swaps that it says could yield more than $30 million in its first year.

SwapNet, in conjunction with European derivatives broker Garban-Intercapital, began trading oil swaps in Singapore in October for some 50 counterparties, primarily in Southeast Asia. SwapNet tapped U.K.-based XMTL to provide the web hosting and architecture for the site. XMTL has guaranteed 99.5 percent connectivity and constant customer support, allowing for 24/7 trading from anywhere in the world. The system is like other on-line financial auction sites, allowing bids and offers to be made anonymously and for trades to be concluded in real time. Settlement is handled by Citibank via a direct Internet link.

Koch Securitizes the Weather By now, everyone’s heard of insurance securitizations, in which insurers and reinsurers lay off risk onto the capital markets in the form of bonds and other securities. But now, a whole new market may be developing in weather securitizations that could change the way the weather derivatives market operates. Last month, Koch Energy Trading announced a three-year securitization of the firm’s weather risk. The deal transfers to investors the risk associated with certain levels of annual losses across a fixed portfolio of 28 weather derivative contracts, each of which is based on temperature experience at one of 19 weather stations throughout the United States. The securities were offered in two tranches—first-event notes paying 15.7 percent fixed annual coupons, and second-event notes paying 8.7 percent fixed annual coupons—by Cayman Islands-based Kelvin Ltd. Risk Management Solutions, based in Menlo Park, Calif., served as the deal’s modeling provider, and Goldman Sachs was the sole placement agent. “You can think of this as the next step in the development of the weather derivatives market,” says Paul VanderMarck, vice president of risk applications at RMS. “Koch, which has a lot of weather risk inherent in its energy business, has accumulated much more weather risk as it has written weather transactions with numerous counterparties. A securitization like this is a great way for Koch to lay off that risk, since it’s not designed like a reinsurer with a balance sheet that’s built to absorb a lot of risk. Koch doesn’t want to have more than a certain acceptable amount of risk on its balance sheet, so it’s used securitization as a way of transferring that risk to investors and reinsurers.” RMS will be providing daily updates of recorded temperatures and related statistics for the transaction on its web site at www. riskinc.com/weather to help investors track the performance of the securities over the three-year term.

SwapNet has started by trading Singapore gas oil and NW high-sulfur fuel oil, says David Verinder, SwapNet’s chief executive, who notes that the company hopes to extend product coverage to include not only more oil products but eventually metals, electricity, gas and weather derivatives.

Garban-Intercapital, meanwhile, will provide a hybrid broker function, advising customers and, when asked, entering orders into SwapNet trading screens. The SwapNet system includes front- and back-office and credit management software, as well as smart cards, to ensure a secure trading environment.

Eurex

Eurex has set its sights on yet another massive European market: energy. Sometime in 2000, the Frankfurt-based derivatives juggernaut, in cooperation with the Deutsche Börse, will launch the European Energy Exchange.

On January 1, 2000, new power grid rules will go into effect in Germany, effectively establishing two power-trading zones and creating a standard grid-pricing benchmark. The EEX will square off against the rival Leipzig Power Exchange, which plans to start trading in March.

Initially, the EEX planned to trade only physically settled electricity futures, but the exchange announced in October that it would try to create a spot market as soon as possible. The LPX, meanwhile, will begin with a spot market based on NordPool’s auction system, and plans to develop a futures contract once a liquid spot market is established.

The EEX is betting that customers will prefer its spot, futures, and clearing and settlement functionality to that of LPX, and has already enlisted several Swiss utilities to join the project. According to EEX’s Christian Geyer, market participants favor one energy exchange across Europe. Commodity markets are generally smaller than financial markets, he points out, accounting for only 20 percent of worldwide futures trading volume, so a new exchange-based electricity market must concentrate liquidity to develop properly. Market participants, he argues, are not prepared to bear the costs of several exchanges in the long term, when one exchange can organize the market just as well.

The Deutsche Börse, the creator of the EEX, has transferred the entire project to Eurex, which will use a version of its own electronic trading platform, as well as its clearing and settlement capabilities.

Altrade Power

This Internet thing just might be for real. In October, Altra Energy Technologies, Amerex and Prebon Energy launched Altrade Power, a real-time, on-line electronic power trading system. The companies boast that the site, which went live on October 14, combines newfangled on-line trading exchange technology with the traditional voice broker market.

The day it launched, the site attracted more than 210 installed users, who completed more than $24 million in wholesale power trades.

Altrade Power, say its backers, offers real-time, market-wide price discovery and trading anonymity—and will eventually offer transaction liquidity. The system gives traders the personal attention provided by traditional voice brokers as well as the speed and market coverage of electronic trading systems.

“The marketplace is demanding better liquidity and price discovery,” says Mark Crosno, president of Altra’s electronic trading services division. “[Altrade Power offers] the industry instant access to the whole market. With the help of our alliance, traders will ultimately have instant access to more than 700 counterparties at more than 150 of the industry’s leading trading firms.”

Altra also operates Altrade, a real-time, anonymous on-line trading facility for natural gas, crude oil and natural gas liquids, and supplies energy transaction management systems that help customers with risk management, physical delivery and financial settlement. Amerex and Prebon are well-known energy brokers.

“Following the price spikes of 1998 and 1999,” says Carey Turnbull, cochairman of Amerex, “the wholesale power market is demanding enhanced tools for more efficient deal execution. Traders told us they need a single focal point for getting their deals done, yet they do not want to give up the services provided by their voice brokers. Through our alliance, we have answered the market’s demands.”

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