A UtiliPoint IssueAlert
By Gary M. Vasey

Prior to the collapse of the Merchant energy segment, the North American Trading and Risk Management tradeshow was a vibrant and well attended event but in recent years many of the big tradeshows in that industry space have died off or died out altogether. But not here in Europe! E-World Energy and Water held every year in Essen, Germany has over 500 exhibitors ranging across the industry from large energy companies such as RWE, Vattenfall, CEZ, and the like to small software vendors and data providers. The coverage of the show is both trading & risk management and inside the Utility so covers smart metering, smart grid, CIS and more. Furthermore, the event was absolutely packed.

I have mixed feelings about tradeshows. On the one hand it presents a super opportunity to learn more about industry trends and events as well as to meet new contacts and old friends but it is also tiring and hard on the feet and back. For me however, E-World provided a snapshot of the European energy world and how it has changed! You just need take a look at some of the tag lines used by some of the energy companies to realize this:

"Making Electricity Clean" —Vattenfall

"Pure Energy" —Statkraft who also portray themselves as "The European Leader in Renewable Energy"

"Positive Energy" —EnerCity

"Your Partner in a Dynamic World —E.On

"Economic Sustainability" —Endesa

"All Your Energy Needs from One Reliable Company" —CEZ

In fact, the energy company exhibits included electric cars, solar-powered cars, wind mills and Smart Grid/Meter/Appliances. One could have thought that this was an environmental tradeshow! But it goes to show how the European consumer of energy is concerned about the environment and how they seek providers who are not just reliable but provide energy from renewable sources. Energy in Europe, it seems, has to increasingly be seen as ‘clean’ from the consumer’s perspective.

This year, I observed very few new software vendors at E-World. Instead, there were many new consulting companies and initiatives around green energy, carbon trading and other environmental initiatives. Outside of the energy companies themselves with their huge two story booths, side shows and exhibits, one of the largest booths was Point Carbon, an environmental/energy advisory and consulting firm. The public theme was definitely around clean energy and related topics.

And yet was it? Tradeshows happen for a reason and that is to facilitate business and here it is business between traders. Under the surface of the green theme and posturing one could detect business being done between originators and traders. Almost every exchange in Europe was also present adding to the perception that here in Europe the trading business is still very much about networking and personal contacts. Several larger banks also had booths with private areas for discussion out of sight. These areas were invariably full of suited individuals engaged in deep discussions ostensibly about risk management and trading strategies. To back this up, much of the news reported at the event revolved around market liquidity, new trading instruments and accusations of market manipulation against one large European utility.

Tradeshows are alive and well in Europe and while they present an opportunity to "image make" and message spin about "green energy" the truth is some real business was being done between traders and that is what these events are really about. It is still a people business which requires relationship building and networking and based on what I saw—it is thriving.

I wrote an article last December in which I noted that unconventional sources of natural gas, that is shale, tight sands and coal seam, were the true competitors of imported LNG, in that with finding costs as low as $3.00/mmbtu, these domestic sources would almost always undercut the cost of bringing LNG into the states.

The reality that the US sits atop, and can easily access, one of the largest natural gas reserves in the world is starting to have substantial impacts for non-US producers that had previously seen the US as a lucrative market for their product.

Last week Gazprom, the Russian gas export monopoly and one of the largest gas producers in the world, announced that they have agreed with their partners, Total and Statoil, to delay the development of the giant Shtokman field in Russia’s Arctic region due to “major changes in the global gas markets”. The announcement indicated that that gas delivered by pipe from the field would be delayed from 2013 to 2016, and LNG exports would not start until 2017.

If there was any doubt as to what the company meant by “major changes in the global gas markets”, those doubts were put to rest today when, according to Reuters, Gazprom’s deputy chief executive, Alexander Medvedev, attacked shale gas production in the US, saying of the massive hydraulic fracing used to open-up the shale reservoirs, “This technology endangers drinking water” and noting that the company was “keenly awaiting the results of investigations by the U.S. Environmental Protection Agency into shale gas drilling”. Mr. Medvedev did say, however, that despite the delays at Shtokman and growing gas production in the US, he still felt that LNG could effectively compete with US domestic gas sources and that they remain bullish on this market. What he did not say is whether or not the company still feels they can achieve a 10% share of the US gas market by 2014 as they had indicated last year.

Despite Gazprom’s confidence, and barring EPA or state intervention, US unconventional gas production is going to continue to grow and be a barrier to LNG imports. Whats happening in the coal seam, shale and tight sand gas fields scattered across the US is having, and will continue to have, impacts felt around the world.

A CommodityPoint CommodityAlert
By Patrick Reames

With the aging of the workforce, the energy industry in the United States is facing the loss of the experienced and skilled resources that have developed, deployed and maintained the complex systems that underpin our energy infrastructure and the markets that operate within it. Anticipating the industry’s needs, many universities in the United States have developed programs designed to equip new graduates with a broad understanding of many of the technologies that are required as this industry continues to rapidly evolve in the United States.

The breadth of these educational programs include the traditional engineering courses that focus on the skills necessary to design and maintain the wide ranging systems and infrastructures that delivery energy in its many forms, including recently developed courses focused on “green” energy and smart-grid technologies. Others, like programs offered through the business colleges at the University of Texas, Tulane, and the University of Houston, are focused on the business of energy trading and risk management, acquainting students with the dynamics of the complex energy markets and equipping them with the analytic skills necessary to find employment in the energy trading industry.

One area related to energy that has not been particularly well served by the universities until now, however, is the information technologies and systems that are required by, and specific to, energy trading and risk management.

Energy trading companies have traditionally had to internally develop the skills and knowledge that are required of the IT resources supporting their trading operations. These requisite skills include a solid understanding of the terminology and processes of energy trading, in addition to the technical skills required to install, integrate and support extremely complex commodity trading systems. Once trained, these IT resources become a critical component of the trading floor and, should they leave, the cost to replace them in terms of time and dollars can be very high.

The University of Houston’s Bauer College of Business, having recognized the challenge that these companies face, has designed and launched a first-of-its-kind Energy Trading System Track, covering the issues and complexities of energy trading and risk management (ETRM) software and technologies. This new Energy Trading System Track leverages the schools finance department course in Energy Trading and couples it with a new Management Information Systems (MIS) course for 2010, Energy Trading Systems.

The new program is the brain child of energy industry veteran, Ed Bell, who, through his long association with the university, has marshaled the necessary support to create the program and is serving as the instructor for the first iteration of the course. The Energy Trading Systems course will leverage the school’s existing classroom and lab space, including a dedicated network infrastructure on which students will get hands-on experience in the complexities of installing, integrating and supporting complex ETRM systems.

The university’s course description outlines the objectives for the class: familiarize the MIS/SCM undergraduate students with energy business processes related to risk in trading; provide hands-on exposure to the software and hardware tools used by firms to manage these processes; allow students to develop understanding of how to leverage and use the technology for profit and efficiency; and provide interaction between talented information-technology students and the energy trading community. Mr. Bell notes that his priorities as an instructor are for his students to develop a working knowledge of energy trading practices, terminology and systems concepts; to acquire enough knowledge to evaluate a career as an IT or Supply Chain professional in an energy trading environment; and get substantial hands-on system experience from their lab environment that will mimic a trading floor infrastructure.

According to Mr. Bell, the students, in addition to getting a well-rounded understanding of the working of the energy trading markets, will get valuable hands-on experience installing and implementing a leading commercially available ETRM system, GasPro, donated to the school by Data Management Solutions. That company’s founder and president, Frank Pena, will also play a hands-on role, working with the students to provide an understanding of the software and how to appropriately model within it, the energy markets that it serves. CommodityPoint is also proud to note that one of our “UtiliPoint Expert Series” books, “Selecting and Implementing Energy Trading, Transaction, and Risk Management Software” will be utilized as a supplemental text for the course; and in addition, our organization will be providing a guest lecturer during the semester.

This new course has attracted a significant amount of attention on the U of H campus. Mr. Bell notes that all available seats are taken for the current semester and several students that wished to take the class were unable to sign-up due to space limitations. The school is looking toward expanding the offering next semester to include an additional course in order to meet the current and anticipated demand.

This new course and the skills being taught should come as a welcome development within many of the country’s energy trading shops, particularly those in Houston that recruit heavily on the University of Houston campus. The ability to bring onboard new employees already equipped with many of the critical skills in energy trading IT should provide valuable savings, both in time and dollars, to companies seeking to expand and upgrade their workforce to meet the challenges of a constantly evolving industry.

CommodityPoint is conducting a survey of trading and risk management professionals to determine their views of the value and utility of third party provided forward price curves for gas, power and crude markets. Our research will provide a better understanding of the availability of such products and their usefulness to energy trading organizations. If you are an energy trader or energy risk management professional, we would welcome your confidential reply to our web-based survey.

The survey will take only a few minutes to complete and in return for your valuable time, we will provide you with a executive summary of the results which will provide valuable insights and a better understanding of how your peer group is utilizing such products.

Your participation is greatly appreciated. The survey can be found at www.utilipoint.com/2/pricecurves/.

Many thanks and we look forward to your responses!

I had the opportunity to visit with Peter Armstrong, Triple Point’s president and CEO, a couple of days ago (look for an upcoming CommodityAlert interview with him in the next week or two). During our conversation, he spoke at length about Triple Point’s 2009 results.

Mr. Armstrong noted that for 2009 vs 2008, the company had an increase of 30% in revenues and a 55% increase in profits. He also pointed out that these results follow a year of tremendous growth in 2008, in which the company had increases of 139% in new license sales, 79% in profits, and 63% in revenues. In terms of the outlook for 2010, he said that their sales pipeline for this year is even stronger than in 2009 and he is confident the company will enjoy another record setting year.

Other 2009 highlights he noted during our call: the company closed two significant acquisitions during the year, Softmar and Enerbility Software Gmbh, and completed a total of 22 implementations in 19 countries.

These results are impressive, even more so when one considers the economic climate in 2009, particularly during the first half of the year. Triple Point does appear very well positioned to continue this level of growth. With perhaps the most diverse customer base in the market (both in terms of geographies and commodity coverage) and an expanding menu of functionality achieved in large part through acquisition, they will be able to take advantage of a expanding global economic recovery (if current trends continue), or to weather a downtown in any particular segment should the economy again sputter in 2010.

Solarc announced yesterday that they had closed a new deal with SHV Gas Supply and Risk Management, licensing the company’s RightAngle product to provide integrated trading and risk platform coverage for SHV’s global operations. SHV Gas is a Netherlands based company with supply and risk management operations in Paris, Vienna and Singapore.

According to the press release, “SHV Gas is the largest dedicated global LPG distributor. SHV Gas operates in 27 countries, employs 13,500 people, has a turnover of over EUR 5 billion, and provides LPG to tens of millions of customers. SHV Gas is part of a family owned organisation that has supplied energy to businesses and consumers for over 100 years. SHV is also currently active in developing a variety of renewable energy technologies through its subsidiary, The Clean Energy Company. For more information, please visit www.shvgas.com.”

A CommodityPoint CommodityAlert
By Patrick Reames

The CTRM product landscape has always been somewhat fractionated, with a large number of product vendors servicing component process of the commodity trading value chain, or in some cases, specific processes associated with a single commodity. Others, those generally regarded as the “Big 5″, have gained their market leading positions by providing multi-commodity solutions that, while not addressing all the business processes associated with all commodities, do address a large portion of the functionality required by the largest energy and commodity trading operations around the world. Traditionally, most have focused more on the financial trading side providing straight through processing for paper trades while offering some degree of functionality for the physical trading but perhaps lacking operations and logistical management for physical trading.

Those five (Allegro, Solarc, SunGard Energy and Commodities, Triple Point Technology, and OpenLink Financial) have traditionally fought one another for the largest deals around the globe, the multinational merchants, traders, and producers of energy and non-energy commodities. While each of these vendors offer a somewhat unique blend of functional and commodity coverage, each has been successful selling products that provide physical and financial deal capture, position management, risk management, and settlement/accounting. However, rarely have the products from these large vendors been deployed in isolation. Indeed, in almost all cases, customers who have bought these systems have also licensed additional third-party components to address specific functional gaps that are not addressed in the larger CTRM systems. Many of these gaps are associated with logistical complexities of specific commodities or region/country-specific market requirements.

The large vendors have obviously recognized those functional gaps (and the revenues lost to smaller vendors) and have, at times, attempted to close them through internal development, generally in cooperation with a client or group of clients who could supply commercial support and business expertise to the development process. However, within the last couple of years, many of the “Big 5″, including Solarc, Triple Point, and OLF, have sought to build out their product capabilities via the acquisition of smaller companies whose products provide specific functional capabilities, or coverage of additional commodities. These acquisitions have brought functional products, established clients, and the business and technical expertise that was not readily available in-house. These deals have allowed the vendors to quickly expand their market coverage, increase their revenues, and gain some competitive advantage against the competition.

In fact, this trend toward acquisition has been accelerating, with just this week, two of the “Big 5″ vendors, Triple Point and OpenLink announcing new acquisitions.

Triple Point’s most recent announcement is, in fact, their second in as many weeks. Last week they announced the acquisition of Softmar, a Geneva based developer of solutions for shipping and vessel operations. The new deal announced this week, Enerbility Software GmbH, a Vienna based company, will provide Triple Point’s European Commodity XL clients with improved back office capabilities via Enerbility’s market communications solutions. Additionally, this latest acquisition brings with it additional European market expertise and a client base that includes Alpiq AG, E.ON, Statkraft, Verbund APT, BKW FMB, and Vattenfall Energy Trading Netherlands NV (formerly N.V. Nuon) among others. These two recent acquisitions are the fourth and fifth for Triple Point in the last two years, as they had previously picked up CoralSoft (solutions for precious metal trading), Rome (credit risk management), and Inssinc (hedge accounting).

OpenLink announced this week that they have acquired dbc SMARTsoftware, Inc. (dbc), a global provider of software solutions for the agricultural, biofuel and soft commodity industries. dbc’s product, SMARTsoft, is a “value chain” management software suite for “producers, processors, manufacturers and traders who buy, sell, hedge, warehouse, merchandise, export, and transform commodities into value-added products and by-products for distribution”. According to OpenLink, dbc’s product have “hundreds of installations in sixteen countries”, providing OpenLink the opportunity to sell additional solutions into markets they had not previously served. This is OpenLink’s third acquisition in about two years, with the company having previously acquired European based IRM (generation asset management) and an interest in MCG (North American power market solutions).

CommodityPoint has observed the changes taking place in commodity markets; trading a more diverse portfolio of commodities, new and changing relationships amongst commodities and the growing desire to assess the profitability and risks of a trade through its entire value chain including such things as cost of storage, transport, credit exposure and so on. These trends in the industry have been incorporated into the buying criteria of those seeking CTRM software and the vendors have had to and will continue to need to respond.

CommodityPoint has been consistent in our belief that this consolidation of vendors will continue, with the largest vendors in the market acquiring smaller players in order to expand their product capabilities and their market reach. Given the more than 80 vendors that we’ve identified (and listed in our online directory of CTRM vendors at www.trmdirectory.com) that service some or all of the commodity wholesale supply chain, the larger vendors can be selective in pursuing the right acquisition targets, finding those “specialty” vendors that can provide a quick return and whose products dovetail with their own, allowing them to create a solution that provides not just those functions and capabilities needed by the majority of the market place, but can also address the unique needs, particularly around logistics, that are required to address the entirety of value chain of each individual commodity.

Despite the obvious appeal of acquiring additional functionality, these deals do come with a significant burden and risk for the acquiring company - each new acquisition must be successfully integrated, in terms of technology, organizations and clients, into the acquiring company’s business. In the end, the real determinate of success is not who can buy the most companies and sell the most functionality, it’s about who can buy the right companies and can effectively manage the integration of those acquisitions in order to create the greatest value for the market and in turn, the acquiring company and its shareholders.

The landscape of CTRM vendors is changing rapidly. Within minutes of each other this morning, Triple Point and OpenLink both announced new acquisitions that expand their functionality and product footprints. A quick overview of each…

Triple Point, following their acquisition of Softmar last week, just announced that it has acquired Enerbility Software GmbH. According to Triple Point’s new release, “the acquisition extends Triple Point's straight-through processing capability to connect European energy traders with suppliers and customers from trade execution to cash settlement.” Enerbility was founded in 2004 and is focused on automating what are primarily back-office processes in the energy trading industry. Enerbility, based in Vienna Austria, brings with it a number of high-profile clients including Alpiq AG, E.ON, Statkraft, Verbund APT, BKW FMB, and Vattenfall Energy Trading Netherlands NV (formerly N.V. Nuon).

Within minutes of the Triple Point announcment, OpenLink announced their acquisition of dbc SMARTsoftware, Inc., (”dbc”), a global provider of software solutions for the agricultural, biofuel and soft commodity industries.

With this acquisition, Open Link expands their capabilities in the agricultural commodity and products space, in addition to chemicals, softs and fuels, as dbc develops and markets SMARTsoft, a software solution suite for producers, processors, manufacturers and traders who buy, sell, hedge, warehouse, merchandise, export, and transform commodities into value-added products and by-products for distribution. According to the company’s press release, the dbc brings “hundreds of installations in sixteen countries”.

CommodityPoint will be examining the impact of these acquisitions on the broader CTRM markets in the coming weeks. However, at first blush, we believe these types of announcements will continue throughout the year. The leading vendors in this space are well funded and are seeking market advantage, particularly in Europe and the emerging markets in the Asia-Pac region, as the commodity markets begin their recovery from the disastrous period of late 2008 and early 2009.

As of this coming Monday, Mr. Mark Tredway joins CommodityPoint based in our Brno, Czech Republic office as Director of Business Development. Mark is a native of South Africa but now lives in Brno with his Czech-born wife. Mark's role will be to help us in business development and client management globally. We welcome him and look forward to working with him.

Triple Point announced this morning that they have acquired the software arm of Softmar, a Switzerland based software house that specializes in solutions for commercial chartering and vessel operations. According to the press release, Softmar currently has 60 customers, many of which are also customers of Triple Point.

This deal is a clear continuation of Triple Point’s growth strategy, that of increasing their client base and market reach by expanding their solution capabilities to encompass functionality that many of their competitors view as “ancillary” to their core CTRM offerings. Triple Point has done a tremendous job of finding the right acquisition opportunities to date, having seen great success in selling new products and functionality derived from the Rome and Inssinc acquisitions. Its this track record of successfully executing on their strategy that gives one confidence that this new acquisition will be similarly successful for the company.

We’ll be speaking with Triple Point soon about this acquisition and will update you after that.