Old giants launch Net exchange for energy and metals

Old economy giants, including BP Amoco, Royal Dutch Shell and Goldman Sachs, moved yesterday to outmanoeuvre upstart Net rivals with a joint venture to create IntercontinentalExchange (InterEx), a business-to-business trading hub for dealing energy, metals and other commodities.

Based in Atlanta, the venture, which is to launch later this year, will set up a number of internet trading hubs to exchange over-the-counter (OTC) contracts specialising in petroleum and precious metals. Plans are also advanced to develop online markets for other commodity products including natural gas, electric power and a variety of base metals.

"I believe that, just as financial products have quickly and efficiently moved onto electronic trading platforms, so too will commodity products," said Jeffrey Sprecher, who will head InterEx. Mr Sprecher is the former chief executive of Continental Power Exchange, the company which developed the trading system to be used in the new venture.

In recent months, established companies have begun to fight a rearguard action against fast-moving Net ventures that have targeted business-to-business markets as the next big sector to be transformed by the Web. Companies like Vertical Net of the United States and Just2Clicks, based in Newcastle, have moved to establish vertical markets or trading hubs linking companies in the supply chain for a particular business sector.

By cutting costs in a specific business supply chain, the trading hubs aim to supersede traditional methods of business-to-business dealing. In addition to facilitating e-commerce, the hubs also distribute industry-specific information.

"Energy and metals are a natural start, but not an end to this venture," Mr Sprecher said. "My own experience in the natural gas and electricity markets and my understanding of other established and emerging commodity markets suggest that growth for this method of trading will be exponential."

In 1999, the value of OTC commodity contracts exceeded £1.1 trillion. Other participating partners in the venture are Deutsche Bank, Morgan Stanley Dean Witter, Société Générale and Totalfina Elf, the petroleum and chemicals group.

The bulk of trading in the wholesale OTC energy and metal markets is conducted by telephone trading networks. The InterEx trading platform will aim to offer OTC traders increased market transparency and liquidity more efficiently that current exchange mechanisms.