Major Developments in the Global Energy Landscape

Energy sectors the world over are showing the they can rapidly react to the new demands of the market. They have a gone a dramatic transformation in the last couple of years. This year the industry looks set to introduce even more changes.

The mergers of InterContinental Exchange (ICE) and New York Board of Trade (NYBOT), and Chicago Board of Trade (CBOT) and Chicago Mercantile Exchange (CME); the launch of the Philippine wholesale electricity spot market (WESM), Dubai Mercantile Exchange (DME), and the Prague Energy Exchange; and the spread of electronic trade are just some developments that occurred for the last two years.

There are still more new developments and innovations are afoot, which include the impending business consolidation between Germany's European Energy Exchange (EEX) and Powernext of France; the introduction of European spot market South Pool, Indian Energy Exchange (IEX) and International Mercantile Exchange; and the OMX purchase of Nord Pool's derivatives products.

Moreover, the Philippine Electricity Market Corp. (PEMC), the operator of WESM, has mulling over a proposal to introduce a forwards market for electricity to address the lack of facility for hedging spot market transactions. In like manner, due to the recent appetite for carbon trading and renewables, the NYMEX is planning to launch a “green” exchange.

EEX and Powernext power venture

Leipzig-based EEX and Paris-headquartered Powernext have agreed to pool both their power spot and futures markets. The joint venture also includes plans to integrate operations with Swiss Eurex and Scandinavian Nord Pool exchanges, which are both major stakeholders in EEX. The deal is complementary to the proposed coupling of European power markets that was initiated in June 2007 by France, Germany, Belgium, the Netherlands and Luxembourg.

Creation of South Pool

Slovenian power exchange Borzen and Eurex of Switzerland introduced a spot market for power, South Pool, for the southeast European region. The new exchange, which was launched just recently in Jan. 2008, aims to establish a potent regional cross-border energy exchange with a spot market for power, and later natural gas.

OMX Norwegian acquisition

Swedish exchange technology firm OMX has bought Nord Pool's international derivatives products, along with the latter's clearing and consulting operations. The move aims to create a global energy and carbon exchange to be called Nord Pool International. The deal, which costs OMX some 2.3-billion Norwegian kroner (about US$411-million), will allow Nord Pool to expand further internationally. Nord Pool's Dutch and German power derivatives contracts were the first products being traded on the new trading platform, which commercial operations began in Jan. 2008. Possible products to be launched next are crude oil, natural gas, freight and carbon contracts.

PXE spot market commencement

The Prague Energy Exchange (PXE) commenced operations of spot electricity market trading on January 31, 2008. The market operator OTE (Operátor trhu s elektřinou) is the one managing intraday power trading. Transactions in the spot market will be made in euros per megawatt hour in line with PXE's existing and new products, such as the Czech Base Load Day and Czech Peak Load Day. CEZ and E.ON Sales & Trading act as market maker.

New Zealand's ETS proposal

Carbon emissions output in New Zealand is growing at a startling pace. The country's annual emissions already reached 80-million tonnes of carbon dioxide equivalent (Mt CO2 e). In global perspective, New Zealand has the 12th highest per capita emissions level due to too much reliance on private transports and emission-intensive industries. This has led the government to propose a framework for the phased introduction of an emission trading scheme (ETS). Credits eligible in the ETS will include the domestic New Zealand unit (NZU), certified emissions reductions (CER) from the Clean Development Mechanism (CDM) projects, and emissions reduction units (ERU) from the Joint Implementation (JI) projects.

Sour crude trades at DME

The Dubai Mercantile Exchange Ltd. (DME), the Middle East’s first international energy futures and commodities exchange, was launched in June 2007. DME has developed and lists the Oman Crude Oil Futures Contract to address the growing market need for price discovery of Middle East Sour Crude Oil while simultaneously bridging the time-zone gap between Europe and Asia and North America. The first daily settlement price of the Oman contract was registered at US $64.09.

India's one-two power punch

The Indian Energy Exchange (IEX) was approved in principle by the country's power regulator in Sept. 2007. The online power exchange is backed by Power Trading Corp. (PTC) and Financial Technologies (FTIL). However, it seems that its competition is already being hatched, even if the exchange is not operational yet, as the National Thermal Power Corp. (NTPC) and National Commodity & Derivatives Exchange (NCDEX) applied to create another power exchange in the country. The growing number of industry players serves as an encouraging factor for the development of the two parallel exchanges.

Spread of online trading

Open outcry trading pits become less and less meaningful with the proliferation of electronic trades. In fact, the 137-year-old NYBOT will be closing all open outcry trading for futures contracts by the end of Feb. 2008, following a merger deal with global online exchange operator ICE. But prior to that, NYMEX had already made the first move by abandoning the floor for natural gas, then switched to an electronic platform for natural gas futures trading. In the Philippines, its first power exchange is designed on an online platform, which makes bidding via electronic transmission.

The launching of the WESM

Speaking of WESM, the first Philippine power exchange was commercially operated in June 2006. This establishment of the spot market satisfied the third condition set by the government for the commencement of open access and retail competition. Initially, only the Luzon grid was launched. PEMC, the market operator, has outlined its agenda for this year and beyond, which include the commercial operations of the Visayas grid on the first quarter of 2008, dry run of the forwards market by Mar. 2008, probable launch of the reserves market, and development of new products, like the financial transmission rights (FTR).