BFS 2002

Plenary Address

The energy markets in the developed countries underwent a profound transformation during the 1990s. Many sectors of the energy industry have been deregulated with competitive forces reaching down to the retail level. The growth of trading volumes was accompanied by emergence of new types of energy companies, specializing not so much in exploration, production and processing of energy commodities, but in management of risks related to price volatility, credit exposures and operations of physical assets. Significant percentage of transactions was shifted from the organized exchanges and traditional OTC markets to electronic trading platforms. This process came to an abrupt halt in the United States, with unprecedented volatility of electricity and natural gas prices in the western markets, followed by elimination or significant retrenchment of major players. The questions I shall attempt to address are: 1. What are the underlying causes of the present crisis? 2. Can the energy markets be revitalized by the return of more disciplined financial institutions to the energy markets? 3. Are energy markets (or certain segments of the energy complex) so unique that a return to a system of resource allocation based on regulation is inevitable? 4. What contribution can be made by the academic community to support development of competitive energy markets?