Watching the World: Dot-com one, come all

May 14, 2001
The demise of PetroCosm Corp., Houston, one of the oil business's pioneering electronic marketplaces, can hardly have come as a great shock to industry observers.

The demise of PetroCosm Corp., Houston, one of the oil business's pioneering electronic marketplaces, can hardly have come as a great shock to industry observers. As with worldwide shakeout in the dot.com sector, Malthus can immediately be called upon to explain the e-marketer's failure: the supply chain ecosystem, made fragile by the last wave of megamergers, could not support the myriad business-to-business portals that have sprung up determined to make a living from it. Still, almost in time with PetroCosm's downfall comes the launch of OFS Portal, a would-have-been competitor.

The consortium backing this latest online supply chain venture-made up of dozen of the biggest oil field services players, Schlumberger Ltd. and the ABB Group among them-has built its business case on the need for greater "standardization" of catalogs on electronic procurement sites. But to believe some reports on the day, it was the "price impact" of exchanges such as PetroCosm and TradeRanger that was the prime motivator behind the creation of OFS. So, instead of being the natural outcome of an overstretched sectoral ecosystem, the end of Petro- Cosm looks like it might be better understood as the result of a survival of the (financially) fittest.

Changing of the guard

This changing of the e-procurement guard itself coincided neatly with the announcement by the boards of London's International Petroleum Exchange PLC and Atlanta-based internet energy market IntercontinentalEx- change Inc. of an all-paper $131 million merger bid to create one of world's largest online energy and commodities exchanges. It then becomes a further example of the paradoxical relationship the oil industry has with online business. E-procurement will doubtless continue to set standards for the supply chain into the future-though, for a side of the industry that historically did its business in-house and face-to-face, it may be adopted with some foot-dragging.

Online or bust

As to online energy exchanges, meanwhile, only the mawkish removed their hats in homage to the passing of IPE's trading pit-and its traders-as the terms of the ICE deal were revealed. "The primary advantage [of the merger] arises from the creation of a global network that brings strength and opportunity," stated IPE Chairman Bob Reid, adding, "To be absent from such a development would mean failing to secure the exchange's long-term future."

Factor in the success of the likes of EnronOnline, DynergyDirect, and the New York Mercantile Exchange's online spin-off, enymex, to the equation, and online energy and commodity trading look set for the long haul. Of course, commodity markets have been around for hundreds of years, so "migrating" into an electronic realm will likely be straightforward. With expected trading volume on an enlarged ICE expected, by some observers, to shoot up toward $3.5 billion once it adapts its existing platform for futures trading, Reid's line of reasoning-go-online-or-go-bust-not only gains added lucidity but hints at a scale of energy exchange markets that looms on the horizon.

Whether those frontline e-procurement ventures already up and running-or, indeed, those still to be launched in a future wave of online market start-ups-stand as good a chance of survival will, in the end, depend on their enduring liquidity and the willingness of oil companies backing them through these pioneering days to show deep pockets.