Online wholesale trading in power, natural gas and crude oil will reach 50% of total national trade in 2005, predicts Forrester Research Inc. Financial products will continue to dominate, accounting for more than three-quarters of online energy trading.

Over-the-counter financial products like swaps, forwards and options can dwarf the volume of physical commodities, so they remain attractive to online exchanges. Last year, national trading for natural gas futures and options contracts amounted to about 3.6 times the total quantity of physical trades in the United States and 12 times that of physical deliveries. Physical products trading online also will increase, as markets continue to deregulate and the Internet streamlines transactions.

Online price discovery drives down bid/ask spreads, reducing trader revenues. To compensate for this loss, firms will enable traders to increase their trading volume by reaching more counterparties. Forrester says Enron traders increased their business from an average of 672 deals in 1999 to 3084 deals in 2000 by using EnronOnline.
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