OTC power market down by 60% as firms switch to regulated markets

There has been a sharp decline in the number of over-the-counter gas and power contracts since the demise of Houston-based energy trader Enron. Firms initiating power trades are increasingly conducting them via exchanges or through their clearing services, said speakers at the twenty-thirdBügenstock derivatives conference in Lucerne, Switzerland today.

Christophe Chassard, managing director of RWE Trading UK, said the OTC power market has fallen about 60% since this time last year, following the exit of now-bankrupt Enron, Dynegy and Aquila, along with others, from the business.

With credit counterparty exposures under the microscope and risk managers holding sway over traders, market participants are increasingly looking at exchanges such as the New York Mercantile Exchange (Nymex) and the International Petroleum Exchange to trade and settle vanilla energy contracts, Chassard added. Daniel Carr, Nymex vice-president of international affairs, said volumes on the exchange had “leapt up” so far this year.

Indeed, Nymex seat prices have soared by 57% in the past year, mostly owing to the popularity of the exchange’s natural gas futures and options. Trading on the exchange's Nymex and Comex divisions during the first six months of the year also rose, up 30% from the corresponding period last year to a record 66.9 million contracts.

Trading institutions supported these claims, with Credit Lyonnais Rouse managing director Andy Gooch saying: “There is no doubt that [OTC] liquidity has suffered as a consequence”.

But energy participants had mixed views regarding the pace of deregulation in the European gas and electricity markets.

Juan Alba Rios, managing director of Endesa Trading in Madrid, said he was surprised at the pace of deregulation, especially in France. Ulf Lidman, president of energy market solutions at OM in Stockholm, which supplies technology to Nord Pool, the most integrated and efficient European regional energy market, said he felt overall progress was slow. Asked by RiskNews when he believed a truly integrated wholesale derivatives market for energy products would emerge in Europe, he said it would take at least “five to 10 years”.