Report Suggests Energy Trading Market To Grow By 30%

Framingham, MA — High commodity prices and volatility are driving growth in energy trading as producers try to maximize their market share and profitability and buyers attempt to control their energy costs and risks, reveals a new study published by Energy Insights, an IDC company.

According to this new report, energy trading in liquid hydrocarbons will continue to be robust, buoyed by high prices and increased volatility. Trading in electricity and natural gas will recover from the post-Enron slump. Altogether, Energy Insights forecasts the market to grow by 30% during 2002-2006, with oil and gas majors and financial service firms dominating the trading markets, but with asset-based traders - particularly in power - reengaging. Further on the horizon, increased participation of financial institutions in energy commodity trading will bring program trading in 2008 to 2010.

"Elevated prices and increased instability in energy commodity are driving increased activity in energy trading and risk management," said Jill Feblowitz, program director for Energy Insights' Energy Wholesale Strategies research program. "For the last two years, IT investments have shifted from the front office to the middle and back offices, mostly in response to regulatory pressure. Although this focus is likely to continue throughout 2005, additional trends within the industry indicate a swing of the pendulum away from risk avoidance and toward revenue opportunities."

Energy Insights believes that for users of technology to take advantage of the growth in the energy market, they should make an effort to understand how best-in-class companies, which may be their competitors, are utilizing technology to their advantage. Technology users will want to assess how wide the gap is between themselves and their competitors as well as what it takes to close the gap.

Among the recommendations this document provides for vendors of technology is the importance of easy integration of applications with products from other vendors, especially enterprise resource planning systems. Although application suites are attractive to energy trading companies with small trading volumes, they are not complex nor complete enough to meet the needs of integrated utilities and integrated majors.

The Energy Insights study, Catch the Wave - Energy Trading and Risk Management in 2005 and Beyond (Doc #EI10043), examines the current business and regulatory conditions shaping energy trading and risk management. The document starts by defining the energy markets, the market players, and the various strategies companies are taking to succeed in this market. Also discussed are the business processes that are the foundation of energy trading and risk management. A review of advances in technology that will strengthen the energy markets is provided. Finally, essential guidance for trading companies on where to focus their attention when examining their business and supporting technology and for vendors on where to target product development and marketing strategies is included.

SOURCE: Energy Insights