Opening Cross: Are the Capital Markets on a Power Trip?

Just like the Monster energy drink sitting in front of me as I write this in the wee hours, most sources of energy are a finite resource that all too often we consume without concern for the shrinking supply, increasing cost or impact on our environment (for the purposes of this analogy, think acid reflux instead of acid rain).

While everyone is becoming more aware of the impact of energy consumption on our world, that doesn’t stop us becoming more energy-dependent than ever. The machine-induced apocalypses of the Terminator and Matrix movies are unrealistic simply because Skynet would ensure its survival not through war but by making humanity even more dependent on machines while simultaneously reinforcing the idea that mankind remains in control (think iRobot rather than I, Robot).

Virtually every theme in IMD each week is dependent on electronic markets, high-performance computing, massive datacenters, data displays and increasing numbers of mobile devices—all of which guzzle power at an alarming rate. And while devices—from flat screens rather than tube monitors to mobile device batteries and servers—are more power-efficient than in the past, and firms are making efforts to reduce power consumption by building in energy-efficient manners, we still use energy more broadly than ever.

So it’s hardly surprising that we’re seeing more activity around data in the energy markets. In recent weeks, the trading arms of two Eastern European power companies have confirmed rollouts of Trayport’s GlobalVision Trading Gateway, for traders to consolidate over-the-counter energy prices from multiple brokers. In addition, Wiener Börse’s Central European Gas Hub energy marketplace rolled out the vendor’s GlobalVision Exchange Trading System, in part to support distribution of data from CEGH’s spot and futures markets, and to enable gas traders to combine CEGH data with other markets using the Trading Gateway component.

Also last week, EOX Holdings, the data arm of broker OTC Global Holdings, announced deals with Interactive Data and energy fundamental data provider NRGStream, which will integrate EOX’s end-of-day natural gas basis forward curves, implied volatilities and power forward curves, to provide price discovery for energy traders, as well as internal price validation and mark-to-market valuations for middle-office professionals.

According to Chris Faulkner, chief executive of Breitling Oil & Gas, the energy markets—especially oil and natural gas—will pick up in line with the overall economy, while energy companies will seek new sources of fuels, such as untapped natural gas reserves in the UK, Australia and China, which is seeking “foreign investors with the technical know-how to access its vast reserves of natural gas.”

These resources may not run out in our lifetimes, but whereas financial assets are limited only by the ingenuity of issuers and traders, and the fluctuating economy, commodities must eventually be replaced by more renewable sources of energy.

In turn, these will require smarter systems for trading, purchasing, delivering and managing consumption of energy and the data about pricing, supply and demand, changing the energy trading and supply environment. Some say these so-called “smart grids” will ultimately turn energy consumers into energy producers and traders, able to harvest energy from their own solar panels and sell it to power companies, as well as to sell it to neighbors based on their consumption requirements. But in the immediate future, structured grids and smart metering will allow power companies to segment services so that in times of peak demand and brownouts, they can specify non-essential services to be disconnected, rather than shutting down entire neighborhoods, while consumers will be able to remotely schedule their electricity usage and to schedule appliances to run or charge outside peak times when energy is cheapest.

In short, smarter energy will change how we use and trade it, enabled by smart technology. Hello, Skynet.