Report claims bright future for on-line exchanges in energy industry

A new report published by Energy Info Source suggests that energy companies in the US are increasingly utilizing on-line exchanges as a way of doing business and predicts a fundamental shift towards there use as the process of deregulation continues.

The emergence of online exchanges for both commodities and other products is enabling energy companies to shift to an environment where suppliers can expand their reach and buyers can receive a wider selection and basis for comparison when making purchasing decisions.

The report entitled, “Online Exchanges In the Energy Industry,” provides an evaluation of the technological challenges and drivers impacting energy e-commerce.

It says that energy commodities possess a variety of characteristics that make them an ideal product for on-line trading. The energy itself is an indistinguishable product, independent of quality ratings and trademarks. Online wholesale marketing has the potential to provide greater liquidity and improved price transparency for traders.

In off-line trading, evaluating and selecting trading partners can be time-consuming and inefficient, whereas online trading speeds up this process. Online exchanges are also helping to blur company distinctions such as size and location. Practically anyone anywhere can participate and sophisticated services traditionally reserved for large, preferred customers are available to smaller and less sophisticated companies.

The report suggests that the greatest incentive for participating in online exchange lies in the possibility of reducing overhead and operating costs. Internet trading allows for the automation of many functions that can save time and resources. In addition, the reach of the Internet presents opportunity for suppliers to expand into new markets and acquire new customers. By participating in online exchanges, buyers and sellers can greatly reduce the cost and time of price discovery, risk management, and contract negotiations.

Online trading is not characterized by close long-term and established relationships. In fact, anonymity is considered by many companies to be a tool to disguise their positions. A change in the way buyers and sellers interact has created a market with a whole new set of rules and uncertainties. Companies who choose to use the Internet for exchange should be aware of four major areas of concern: credit risk, liquidity, system security and operating reliability.

The report concedes that there are still obstacles such as reliability, efficiency and interface protocols to overcome before the goal of liquidity can be attained. The future of on-line exchanges within the energy sector will be influenced by the progress of deregulation, uniformity in market development and industries willingness to embrace e-commerce and implement new technologies

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