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EnronOnline to reach $300 billion by year end

OGJ Online

HOUSTON, Texas, Nov. 28, 2000à‚–About $300 billion in commodities will have been traded on EnronOnline by year end, exceeding the company’s wildest expectations, and outstripping early forecasts for all e-commerce potential, says Michael S. McConnell, chief executive of Enron Global Markets, a unit of Enron Corp.

Some 1,150 products are being offered for sale via EnronOnline and 13 currencies are being traded, McConnell said at the annual Arthur Andersen energy symposium. Included in that number is about 25 bcf/day of natural gas. Metals trading is also growing.

“We are still stunned at the success of EnronOnline,” he said. The company serves as a market maker for these products and trades globally. McConnell said the company is now doing up to 5,000 transactions per day via the internet. In addition, thousands of people use it as a pricing tool.

The company is working on new internet products, including a site to be called commoditylogic.com that will change the say settlement is done, McConnell said.

Consultants predict e-commerce will become a $7 trillion market by 2004, but McConnell said, Enron expects the figure will be closer to $10-$12 trillion by 2004.

So quick has been the market response to EnronOnline, McConnell said the innovation has affected Enron’s business is every way. It has made the energy company realize it too could become vulnerable to market-changing developments.

McConnell cited as an example the impact on Encyclopaedia Brittanica Inc. of Microsoft Inc.’s decision to give away encyclopedias on CD ROM. Brittanica went from having its best year ever to its worst year ever, McConnell said.

While the Microsoft version hardly compared to Encyclopedia Brittanica, that barely mattered because the Microsoft version was free. Originally, Enron thought of charging for EnronOline, but then decided to “follow the free,” McConnell said. He attributed the decision to immediately boosting the number of site users and thus liquidity, which proved irresistible to the market.

McConnell said EnronOnline continued to grow during the introduction of competitor IntercontinentalExchange, a new over-the-counter (OTC) energy and metals products trading site. Monday, the exchange said its cash markets in natural gas are averaging 1-2 bcf/day in trading volume, only 1 month after going live with its energy products.

Among its backers are UtiliCorp United Inc. trading arm Aquila Energy, American Electric Power Co. Inc. and Duke Energy Corp. McConnell said there is room for both principal-based models such as EnronOnline and many-to-many models such at InterContinental Exchange.

The real losers will be those to fail to embrace the electronic model at all, McConnell said. Vulnerable are companies who still rely on the ‘dine and sign ’em,’ approach to business as prices become increasingly transparent and more products become subject to commodization, he said.