2005 in review

HIGHS

- An explosion of new players, strengthening emerging markets and increased sophistication defined the energy markets in 2005.

- Record volumes: The New York Mercantile Exchange blew through previous record annual volumes by October this year and at Ice Futures (formally the IPE) Brent and gas oil futures and options volumes hit successive monthly all-time highs.

- The EU Emissions Trading Scheme: the first year of the EU ETS surpassed even some of the most optimistic predictions, with over-the-counter volumes estimated at around 250 million tons of CO2.

- Freight derivatives: the forward freight agreement market also took a leap forward in 2005 as clearing initiatives from LCH - LCH Clearnet and Nymex made the market accessible to more players.

- Nymex Clearport continued to revolutionise energy markets, launching 94 new contracts in 2005, bringing the total to 183.

- The continued modernisation of the energy markets, spearheaded by the International Petroleum Exchange's successful move to become totally electronic

LOWS

- The sorry saga of beleagured Russian oil giant Yukos rumbled on into 2005, coming a step closer to the physical oil markets and increasing wariness of investment in Russia

- China Aviation Oil posted spectacular trading losses in January which it had tried to hide

- The IPE became fully electronic (a low point for most of the locals who contributed to the thriving floor business)

- The constant feuding between the world's largest and second-largest energy exchanges, Ice and Nymex, which saw lengthy lawsuits and counter suits drag on throughout the year

- Hurricanes Katrina and Rita brought the deaths of more than 1,000 people and caused damage to the oil industry estimated at around $18-$30 billion

- The demise of financial brokerage Refco.

January

The scale of the China Aviation Oil bankruptcy is brought to light

CAO's chief executive Chen Jiulin admits selling a 15.8% stake worth $119 million to cover margin calls on the firm's $500 million derivatives trading losses.

While its end-of-year timing dampened the global impact, the losses raised long-term concerns about the Singapore trading environment, counterparty risk and over China risk in general. Auditors PricewaterhouseCoopers later blamed the catastrophic losses on something as simple as poor risk management - in particular incorrect marking to market in its options portfolio.

The European Emissions Trading Scheme - the largest of its kind in the world - launches on January 1.

The 'cap-and trade' scheme, based on the purchase and sale of allocated greenhouse gas allowances, coincided with the first Kyoto commitment period up to 2007. Trading was initially slowish, with Jan 2005 CO2 allowances slipping as low as EUR6.35 ($7.49) per metric tonne, but by July had rallied to around EUR29. Some analysts such as Point Carbon now expect CO2 volumes traded in the first year of the scheme to exceed 250 million tonnes.

February

Swedish firm TriOptima extends its unwanted-swap termination technology TriReduce to the energy sector, to great acclaim.

From the outset, six companies - two energy firms and four banks - benefited from the service by cancelling $3.87 billion in unnecessary oil trades - a total of 1,888 oil swaps, representing 350 million underlying barrels of oil.

Energy Risk's rankings round off the month, and show that while the banks are still top of the commodity derivatives game, the market is becoming more diversified.

Hedge funds moved in on the volatile oil market, and there they stayed - the rankings giving the first inkling of the impact these funds were to have in the coming year.

As JP Morgan's global head of currency and commodities, David Puth, said in February: "The fund business will continue to grow. Call it a bubble, call it what you will, but the hedge-fund business will attract a lot of money." Brokers also made a good showing in the rankings, reflecting the growth of energy trading since Enron.

March

Greenpeace storms the IPE.

Timed to coincide with the February 16 start of the Kyoto Protocol, Greenpeace's protest disrupted open-outcry trading at London's International Petroleum Exchange for over an hour.

Around 35 protesters broke through security and reached the gallery, some even making it onto the trading floor. The protest met with a hostile reception from traders alarmed that the protest could have been a terrorist attack.

Some see as ironic the fact that the protests come a week before carbon futures launch at the exchange.

London-based broker GFI launches Fenics Freight - an online data resource for the freight derivatives market.

The launch, offering access to market prices and analytical tools, signalled that the market was poised for growth, reflected by increasing FFA volumes traded and companies pushing to gain a foothold in the market.

User choice awards show energy software is still a tough game to be in.

Energy Risk readers' votes demonstrated in our second User Choice Awards that, despite flat budgets, competition is still tight in the energy risk and trading software game.

System reliability, closely followed by breadth of data coverage and integration with existing systems, were the main concerns among participants. These all ranked above speed of implementation, cost and support, but users still demand more integrity in the bidding process.

The Intercontinental Exchange announces plans for an initial public offering.

Ice announced its intention to conduct an IPO of its common stock, which eventually launched on the New York Stock Exchange in November.

UK broker group the London Energy Brokers' Association launches landmark green indexes.

Leba designed the spot and forward indexes as independent benchmarks for the European emissions market, with the aim of aiding financial trading and boosting liquidity.

The Leba indexes now compete with the European Energy Exchange's (EEX) daily reference price for the European trade in CO2 certificates, which the German exchange started publishing in late 2004.

April

The IPE launches carbon futures contract, then closes open-outcry pit.

The International Petroleum Exchange - in conjunction with the European Climate Exchange - launched its carbon futures contract on April 22, taking on Nord Pool, EEX and Powernext in the fiercely competitive exchange-traded emissions certificates market.

Meanwhile, the IPE said farewell to open outcry, replacing its pit with screen trading on April 7.

Nymex had already opened a floor in Dublin, with many disgruntled IPE locals expected to jump ship when the New York exchange got the go-ahead from the UK's Financial Services Authority for its own London pit. Despite having misgivings about the suitability of oil products to electronic trading, many were later to feel that Nymex Europe had opened too late and had missed its chance as screen trading took off at the IPE.

May

BoA starts physical power trading.

Bank of America started offering physical power trading, on top of its existing financial natural gas, power and oil products.

Its first trade was in the Electric Reliability Council of Texas market. The move marked the continued expansion into the physical energy markets by banks, partly due to continuing deregulation of power markets in the US.

North Carolina-based Duke Energy makes a $9.1 billion friendly share offer for Ohio energy company Cinergy.

The two firms announced that the merged company would keep the name Duke Energy. When the deal goes through in 2006, the company will have a market capitalisation of $36 billion and annual revenues of around $27 billion, and will be the largest natural gas company in the US - as well as the country's fifth-largest power generator.

French energy giant EdF announces plans to buy Italian rival Edison.

Electricite de France finally managed to get its hands on Edison, Italy's second-largest power producer, after the countries' politicians struck a deal over market liberalisation. EdF teamed up with Milanese utility AEM to launch a cash and share offer worth more than EUR7.2 billion ($8.5 billion).

Oslo-based carbon emissions consultancy Point Carbon buys out Natsource-Tullett Scandinavia, Europe's largest power and gas analysis firm, with the latter disbanding its Oslo brokerage.

The merger added power and natural gas market analysis to Point Carbon's carbon services, and further proved the link between carbon and gas and power prices.

The US Committee of Chief Risk Officers proposes an Energy Data Hub.

The hub's aim is to improve price transparency in the natural gas market.

It took three years, but at a presentation in Houston, the CCRO finally came up with a detailed proposal of a way companies could report their daily trading activity to the hub in the interests of clear pricing, efficient storage and improved security.

A Nymex seat sells for a record $2,485,000, topping the previous record of $2 million set in October 2004. The purchase took people by surprise and made it into the pages of London's Financial Times, but it was to be surpassed two more times before the year was out.

Energy Risk's annual awards ceremony at Energy Risk USA in Houston.

Energy Risk's annual awards traditionally take place this month. Some of the winners this year included JP Morgan, for energy risk manager of the year; Icap, for broker of the year; and Nymex, which won exchange of the year for the second year running. This year's software champs were Triple Point Technology, while our first outstanding achievement award was won by Point Carbon for its admirable contribution to the developing carbon markets.

North American Energy Credit and Clearing clears the first over-the-counter physical power trade in the US.

NECC's system filled a gap in the US market, which had until then lacked a physical clearing solution. The trade meant that the Chicago-based firm had pipped Nymex to the post. What's more, the trade - in the Electric Reliability Council of Texas (Ercot) - was submitted from Nymex's arch-rival trading platform, the IntercontinentalExchange (Ice), which is NECC's partner in the new service.

June

CNOOC seen off by Chevron.

State-run China National Offshore Oil Company (CNOOC), China's third-largest oil company, makes a daring $18.5 billion cash offer for US oil producer Unocal. Although the bid was ultimately to fail to a lower bid by US giant Chevron, it did raise many eyebrows and led some to believe this could be the start of an aggressive shopping spree by China for western energy companies.

July

Weather risk veterans Mark Tawney and Bill Windle leave global reinsurer Swiss Re to start a hedge fund.

The Houston-based fund, Takara, sought to raise $150 million to $200 million in order to start trading in August.

Nymex and Icap launch unique settlement derivatives market.

The New York Mercantile Exchange and interdealer broker Icap launched an electronic market in same-day over-the-counter options on prompt-month settlement prices for crude oil and natural gas. The exchange now holds 30-minute auctions in the morning of each trading day.

The move extended to new energy products the auction framework that investment bank Goldman Sachs has been applying in derivatives markets since 2002.

August

ConfirmHub is launched.

Some 30 companies signed up or were in the process of signing up to this trade-confirmation service provided by brokers Amerex, Icap and Prebon.

The launch prompted calls for a trade execution matching service.

After many delays, the US Energy Bill is signed into law at last.

Energy brokers broadly welcomed the passage of the Energy Policy Act, which was finally signed into law on August 8. although there was still uncertainty surrounding the application of parts of the bill.

Other US players welcomed the repeal of the Public Utilities Holding Company Act, an outdated Prohibition-era law that prevented utility holding companies from subsidising unregulated businesses with the regulated utilities' profits.

September

Nymex sells 10% stake to General Atlantic prompting talk of an IPO.

The New York Mercantile Exchange announced its intention to sell a 10% equity stake to General Atlantic, a US-based private equity firm, for $135 million. The deal valued Nymex at $1.35 billion, and was seen as a stepping-stone to an initial public offering.

Further broker consolidation as Icap purchases United Fuels and GFI purchases Starsupply.

This was widely heralded as probably the last spate of large consolidation in the energy interdealer broker market as there are few large independent brokers remaining. Attention remains, as usual, on Amerex.

LCH.Clearnet launches forward freight agreement clearing contracts.

Freight market participants threw their weight behind the initiative immediately with a high-profile trade going through between Cargill and BHP Billiton, cleared by Refco and BNP Paribas.

Nymex opens London pit.

Nymex opened its London exchange for the trading of Brent and gas oil futures on September 12. Support for the open-outcry floor had dwindled significantly since the closure of the IPE floor four months before, and it was widely expected to fail. Some 16,500 Brent futures contracts traded on the first day, but that had fallen to just a few thousand - sometimes only a few hundred - lots a day a month later.

October

A seat on Nymex sells for $3.1 million.

The deal made headlines on October 27, and beat the previous record of $2.5 million set in May hands down.

Bear Stearns and Calpine team up.

Investment bank Bear Stearns and California-based power company Calpine Corp formed an energy marketing and trading venture.

Focused on physical natural gas and power trading and related structured transactions, Houston-based CalBear Energy, a wholly owned Bear Stearns subsidiary, started trading in the fourth quarter.

Nymex loses appeal on data sharing.

A US court ruled that Ice can publish Nymex settlement prices, meaning Ice customers can use Nymex prices to settle against. Many market players saw this as a healthy step towards ever-increasing market transparency.

Investors pull out of Refco as the scale of debts become apparent: broker files for bankruptcy.

Refco was one of the biggest commodities and financial futures firms until it emerged that its chief executive, Phillip Bennett, had been charged with defrauding investors by using a funding vehicle to hide $430 million of debts.

Jittery investors pulled a total of $850 million from the firm, effectively putting it out of business. Refco then sold its US regulated commodity futures business to London-based hedge fund giant Man Group for $768 million to recover some of the cash.

November

The Nymex seat saga continues:

The latest seat sold for a record $3.77 million - a new record for a seat on any futures exchange. Meanwhile, Ice floats on the New York Stock Exchange and the IPE gets a new name.

Jeff Sprecher, chief executive of Intercontinental Exchange, rang the opening bell at the New York Stock Exchange on Nov 16 his firm's shares listed for the first time. The stock jumped 63% to $42.50 a share from $26 in its first day.

Some felt the stock was overvalued as a spate of technical problems gave rise to fears the platform couldn't handle jumps in oil-trading volumes, particularly on the Ice Futures Exchange - which Ice had just announced was the new name for London's International Petroleum Exchange.

Duke Energy hands over its power and gas derivatives contracts to BarCap as part of the Cinergy takeover.

Barclays Capital said it would receive $700 million for its assumption of Duke's liabilities, but Duke did not reveal the overall value of the portfolio. Duke will retain a smaller trading and marketing business with less risk and collateral.

December

Man sells Refco to Marathon

After London-based hedge fund Man Group had bailed out Refco by buying the whole of its futures brokerage business in a November 10 auction, it decided that there was too much of an overlap between Refco Overseas and Man's existing London-based brokerage business.So it sold the business to Marathon Asset Management.

UN climate summit seeks solutions

Thousands of delegates converged on Montreal for the UN climate change conference aimed at meeting Kyoto Treaty targets - and what to do after the treaty expires in 2012. Canada and the EU sought to find a way to include dissenting countries in meeting targets, while the US insisted it is serious on climate change, but is still resisting targets.

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