A blog about energy trading and risk management

ICE Announces the Acquisition of YellowJacket
January 31, 2008 — Patrick Reames (Views: 41)


The Intercontinental Exchange (ICE) just announced that they are acquiring YellowJacket Software. As I’ve talked about in the past, YellowJacket is provider of what I consider to be one of the best applications for traders to expand their market reach. Using YellowJacket’s application, you can utilize instant messaging to reach multiple counterparties simultaneously, creating an auction for your position. Once you’re satisfied with the bid or offer, you can execute the deal and the system can move that consumated transaction to your internal ETRM systems. Basically, it gives you the power to create your own fully integrated commodity exchange through instant messaging.
YellowJacket has been moving toward the OTC financial energy markets recently, seeking to create more liquidity and transparency in what has otherwise been a fairly dark market, controlled almost exclusively by brokers.
It’s clear that ICE viewed YellowJacket a having the potential to start to infringe on their markets as well. The exchange-like capabilites of YellowJacket are transportable to any market. So, by owning YellowJacket, ICE can control their movements and at the same time, offer additional functionality to their current markets.


Filed under: Natural Gas, Software, Energy, Commodities, Infrastructure, General, Risk Management | Comments (0)




Energy Trading and Risk Management Systems Market
January 28, 2008 — Patrick Reames (Views: 133)


2007 Results, 2008 Outlook, and Customer Implications
UtiliPoint IssueAlertPatrick Reames
If your company purchased a new energy trading and/or risk management (ETRM) system in 2007, clearly you were not alone. 2007 was a remarkable year for the number of new systems sold in North America. The market expansion that first appeared in 2004/2005 continues as commodity prices and volatility remain high, leading buyers to seek solutions that can help them better manage the risks of their business, while at the same time, take advantage of the opportunities this market has to offer.
If you’re currently in the market for a new ETRM system, the results of 2007 may be a mixed bag. Clearly, you want to do business with a solutions provider that is financially healthy, one that you know will be around when you need them. From that perspective, the 2007 results should be encouraging as one of the more remarkable aspects of this very active market is the near parity amongst the leading vendors producing ETRM solutions.
In our review of the 2007 results, it was quite striking that of the leading vendors, it would be very difficult to declare that anyone had a significant advantage in terms of number of deals closed. The 2007 market was truly a case of “a rising tide lifts all boats”. Allegro, OATI, OpenLink, Solarc, SunGard and Triple Point all have closed significant numbers of new license sales this year, and for many vendors, their numbers represent records in terms of unit sales and value. Amongst them, this group of vendors account for at least 85 percent of the market for new products.
Though we are, in this article, examining the results for the North American market, it’s notable that in addition to the success these vendors have had in this market, the global demand for their products also continues to grow. This year, we were able to identify more than 20 deals done outside of North America, with the majority of those in Europe, with additional sales in Asia, Australia, and Africa.
The downside of this market for customers is relative to pricing and support…
While pricing is one of the most closely guarded secrets with vendors, clearly product prices are rising. While vendors continue to fight hard for new deals, they are battling each other on the basis of features and functionality. Based on our observations of the market, it appears vendors are much less willing to discount their license fees to land a customer.
As the vendors are enjoying records levels of new client signings, they are simultaneously faced with the issue of trying to find enough qualified resources to staff the new projects. One has only to peruse on-line job listings to see that most of the major vendors and ETRM consulting companies are seeking to hire consulting staff at all levels, from “entry level” consultants through senior level directors of consulting services. The implications are two-fold:
o If you’re contemplating or are in the process of upgrading or replacing systems, you may find yourself having to wait on resources to assist you. Many of the software vendors and third party consulting firms are reporting a back log of business that cannot be currently serviced due to a lack of qualified personnel. o The quality and experience level of consulting staff is starting to suffer. There is a limited pool of industry experienced resources available. As that pool is being exhausted, many of the software and services firms are finding themselves in the position of hiring and deploying less experienced resources.
2007 Results
UtiliPoint tracked more than 60 “net new” deals for ETRM systems in North America in 2007 (”net new” meaning new client signings, not license expansion deals such as newly licensed commodities, an increase in user counts, or new modules sold to existing customers). We’ve gleaned this information from public sources (press releases), “word on the street” sources, and from discussions with the vendors themselves. We’re certain that we haven’t been able to track every deal, as some ETRM clients are very strict about confidentiality, but we’re confident that we have captured a very large majority of them.
In our analysis we've looked at the 2007 ETRM market results from two perspectives: 1) what commodities were driving new product sales, and 2) which segments, or buyers, were the most active?
Looking at the market place in terms of commodities for 2007, 40? the deals done involved multiple commodities, with most of those deals involving power and gas. In fact, including those deals that included multiple commodities, power was involved in 53? all deals and gas in 49?urchases by fuels end-users continued to be an active market for several of the ETRM vendors with just under 1 in 10 deals being done in that market.
These results tracked fairly close to those of 2006, although we did see an uptick in the market share for crude capable systems in the 2007 results.
Looking at the market from the perspective of who’s buying, we note that utilities made up the bulk of the market in terms of unit sales, if not market value. Many of the deals completed in the utility space in 2007 were driven by the restructuring of the power markets currently taking place in California and Texas. Many of these utility deals would be considered relatively small, as many of the buyers were utilities that do not have large scale marketing groups, but are active in the wholesale markets only to buy or sell for balancing needs. Additionally, a large percentage of these deals were sold under ASP (application service provider) licenses, meaning that upfront costs of acquisition were lower than those for traditionally licensed software.
Other active segments were the merchant trading companies, the financially oriented traders (banks and hedge funds), refiners, and exploration and production companies. These results are in line with what have been observed in the previous couple of years, although on an absolute basis, the number of deals done in each of these segments was higher than those previous periods.
In our analysis, the “Other” category made up almost a quarter of the sales this last year. Included in this category are the commercial and industrial end-users purchasing systems to manage fuel and other feedstocks, gas processers, energy retailers, and LNG importers. The end-user segment, while somewhat lower than last year on a “percent of market” basis, showed growth in terms of deal closings and continues to be a growing market for ETRM system providers.
2008 Outlook
In our discussions with many of the solutions providers, they are clearly optimistic about continued growth in 2008. Based on their current sales funnels, they believe that they will be able to exceed their performance in 2007. The difference between 2007 and 2008 may be in the balance of sales in North America versus those sold internationally.
UtiliPoint believes that the North American market will show growth in 2008, although not at the pace we saw in 2006 to 2007, where we estimate the market grew by about twelve percent in terms of license revenue. We believe that 2008 will show slower growth of around six to eight percent. In fact, it may be that unit sales are flat in 2008, however we believe the license values will be higher as we seeing many of the larger trading organizations starting to make inquiries about the capabilities of the current system offerings to consolidate many of these companies’ legacy systems. Additionally, while we believe utilities will continue to be an active market for ETRM systems, it appears that system replacements driven by the CAISO and ERCOT market changes have peaked as the new markets are scheduled to go into effect this year.
The global markets for ETRM could be the driver of significant growth in 2008. The European market has been fertile ground for US-based vendors and will continue to be so. The Asia-Pacific region will also account for a number of new license deals in 2008. However, based on our conversations with the vendors, we may see significant new markets emerging in South America and, to a lesser extent, Africa. If these markets do develop in line with some of the vendors’ expectations, it could be yet another year of double digit growth.

Filed under: Natural Gas, Software, Energy, Commodities, General, Risk Management | Comments (2)




An Update to “Industrial Injuries and the College Years”
January 28, 2008 — Patrick Reames (Views: 36)


For those of you that know what I’m referring to, and have recently asked, I’ve updated the referenced post. For those that don’t know what I’m talking about, probably just as well, because it contains some rather “harsh” stuff that may not be suitable for all of this audience…

Filed under: General | Comments (0)




ETF’s in the Energy Market
January 23, 2008 — Patrick Reames (Views: 80)


UtiliPoint is undertaking a survey to look at how energy traders are utilizing Exchange Traded Funds, or ETF’s. For those not familiar with ETF’s, they are highly liquid instruments that are essentially a basket of assets that can include anything from stocks, bonds, options, futures, etc. They trade like a stock and unlike most mutual funds, are repriced on an intraday basis to reflect the price changes in their underlying assets. You can also short ETF’s or buy on margin.
In terms of energy trading, there are several ETF’s that are designed to track energy commodities, giving small investors the ability to play in the energy futures markets without dealing directly with the NYMEX. There are funds that will combine interdependant commodities, like power and natural gas, and other funds that will directly track individual commodities, like natural gas.
One such fund is the United States Natural Gas fund which tracks the near month’s natural gas futures contract, or as Ameristock Fund’s (who developed the fund) describes it in their prospectus - “The investment objective of USNG is for the changes in percentage terms of the units' net asset value to reflect the changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana, as measured by the changes in the price of the futures contract on natural gas traded on the New York Mercantile Exchange that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire, less USNG's expenses.” Leveraging this fund can give the small investor exposure to the gas futures contract without having to directly buy or sell those NYMEX contracts. Similiar funds are available for the crude and heating oil contracts.
If you’re either an energy trader or investor who’s currently trading or contemplating trading ETF’s as part of your portfolio, we’d like you to participate in our survey. If you do, we’ll provide you a copy of the survey results. You can reach the web-based survey here. It should only take about 3 to 5 minutes to complete.


Filed under: Natural Gas, Energy, Commodities, General, Risk Management | Comments (0)




Waiting for the NYSE to Open
January 22, 2008 — Patrick Reames (Views: 44)


After the pounding the international stock markets have taken over the last two days, waiting for the NYSE to open is a bit stressful. As I was driving in this morning listening to the ipod, this song, from one of the greatest songwriters ever, popped up. It seems appropriate.
I give you Mr. John Prine’sThe Bottomless Lake…
Here’s the story of a man and his familyAnd a big trip that they tookWell, I heard all about in a restaurantAnd I read it in a history bookThey rented a car at the Erie CanalBut the car didn’t have no brakeSaid Ma to Pa “My God this car”“Is gonna fall into the Bottomless Lake”
Well, Mama turned to Daddy with a pale faceSaid “I’ve done something horribly wrong”“Well, the waters still runnin’ in the bathtub”And I think I left the kitchen light on”Then I heard a crash the car when splashAnd the compass rolled around and aroundOh, for Heaven’s Sake! We fell in a lakeAnd I think we’re all gonna drown
Chorus:We are falling downDown to the bottom of a hole in the groundSmoke ‘em if you got ‘emI’m so scared I can hardly breatheI may never see my sweetheart again
There was plenty of food in the backseatAnd the windows were rolled up tightSo we all nibbled on a chicken legTold stories ‘way thru’ the nightWell, Pa told one that he told beforeAnd the baby got a bellyacheSaid Ma to Pa “My God this car”“Falling down a Bottomless Lake”
Chorus:We are falling downDown to the bottom of a hole in the groundSmoke ‘em if you got ‘emI’m so scared I can hardly breatheI may never see my sweetheart again
Poppa played the music on the radioMama rocked the baby to sleepHe said he would’ve taken the other roadBut he didn’t think the lake was that deepWell, if the ferry been there at the end of the pierWe’d be half way to Uncle Jake’sInstead of looking at fish out the window I wishWe’d hit the bottom of the Bottomless Lake‘Stead of looking at fish out the window I wishWe’d hit the bottom of the Bottomless Lake
So if you’re ever goin’ on a big tripYa better be careful out thereStart everything on you good footAnd wear clean underwearTake along a Bible in the backseatRead of David and SolomonFor if you make a mistake in the Bottomless LakeYou may never see your sweetheart againIf you should make a mistake in the Bottomless LakeYou may never see your sweetheart againIf you should make a mistake in the Bottomless LakeYou may never see your sweetheart again

Filed under: General | Comments (0)




Aging at the Dallas Electric Club
January 15, 2008 — Patrick Reames (Views: 69)


I want to thank the Dallas Electric Club for inviting me to speak last Friday on the topic of Aging Workforce and Aging Infrastructure in utilities. They were a great audience and had great questions after my presentation. If you’d like to know more about this great organization, you can check them out here.
My presentation was based upon a study we did at UtiliPoint last year. We surveyed 47 utilities to find out how big an issue the aging workforce is currently and how big it will be over the next 5 years. As one might expect, doing some simple math around the age of the “baby boom” generation, most of the utilities surveyed expect to lose more than 25? their workers to retirement over the next 5 years. The biggest problem is that these workers are their most skilled, experienced and knowledgeable. Clearly, the aging workforce is going to hit hard not only in the utility space, but across the economy as a whole. Businesses need to start preparing now to address the shortfalls that will occur and look for ways to attract and retain the new generation of workers that will be coming on board, keeping in mind that this new generation of worker is going to be a different animal that those of the past. Their expectations will differ and their attitude toward work is going to have some of the “old timers” scratching their balding heads.

Filed under: Natural Gas, Energy, Commodities, Infrastructure, General, Risk Management | Comments (0)




2007 ETRM Market - The early results are in…
January 9, 2008 — Patrick Reames (Views: 115)


We’ve just completed compiling a preliminary look at the ETRM product market for 2007. Based on what we’ve pulled together (which I can guarantee is more accurate than a New Hampshire exit poll), it was another record year for the space as a whole, and for several vendors.
The year ended with more than 41 ETRM deals signed in North America, and more than 18 deals sold by US based vendors in other parts of the world, primarily in Europe. Our early analysis indicates that the market grew 15-20?ar-over-year in North America (on a unit and dollar basis). The biggest winners amongst the ETRM vendors this year were Triple Point, Solarc, OpenLink, and OATI with their webTrader product.
We’ll be publishing an IssueAlert later this month with a complete review and analysis of the market in 2007.

Filed under: Natural Gas, Software, Energy, Commodities, General, Risk Management | Comments (0)




OATI Establishing a Houston Office
January 9, 2008 — Patrick Reames (Views: 72)


Open Access Technology (OATI) just announced the opening of a Houston office. According to OATI, the office will provide technical, training, and sales support for the company’s Texas customers. Richard Pinion will be heading the new operation. You can see the complete press release on their website.
An interesting note in the release…”OATI serves in excess of 600 client companies in the electricity and gas industries in North America.” Incredible.

Filed under: Natural Gas, Power, Software, Energy, Commodities, Energy Software Vendors, General | Comments (0)




A New Player in ETRM Consulting
January 3, 2008 — Patrick Reames (Views: 94)


I had a chance to meet up with Don Jefferis this morning. Many may know Don from his time with Sirius Solutions, where he built the company’s NYC energy practice and helped them expand into servicing hedge funds and financial backed energy trading shops. Don recently left Sirius and has joined Opportune, a Houston-based consulting organization that has been focused on energy centric M&A, finance and SOX compliance. Don’s charter is to develop a market leading consulting organization to assist Opportune’s client base with high value services around energy trading, system selection, and implementation.
According to Don, his current focus and challenge has been on identifying the right resources to bring on board; however, he indicates that he has had success in finding a number of highly qualified (ETRM experienced) folks that should be joining the company in the next few weeks.
Given Don’s track record of success in the space, I believe Opportune will be a strong contender in ETRM consulting. We’ll keep in touch with Don and his new company and keep you up to date with new developments.

Filed under: Natural Gas, Software, Energy, Commodities, General, Risk Management | Comments (0)




The End of the Year Rush
December 20, 2007 — Patrick Reames (Views: 88)


As usual, just when you think it should slow to a quite close, the end of the year goes out with a flurry of activity; so, I haven’t had much of a chance to update the blog. Today is really no different, however I did want to wish everyone a
Merry Christmas!
and
Happy Holidays!


Filed under: Natural Gas, General | Comments (0)




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