Enron eyes trading steel, data storage

Jeff McMahon, vice chairman of Enron NetWorks, said Thursday Enron Corp. is considering development of a business in commodity trading of steel, data storage, grains, lumber, and shipping and transportation. The big energy company appears to be evolving into more of a telecommunications and e-business outfit now that EnronOnline is a big success. The company is continuing to add new markets to its trading and risk management business moving way beyond energy.


Ann de Rouffignac
OGJ Online

Enron Corp., originally a regulated pipeline company, appears to identify more with internet businesses than with the energy sector these days. And its ownership of EnronOnline, a internet-based system for conducting wholesale transactions with Enron as principal, is proof.

Enron added pulp and paper to its basic energy commodity trading and risk management business almost two years ago. When Enron announced this month that it would acquire a pulp and paper company to back up its trading and risk management business in that commodity, the move came as no surprise.

In remarks today, Jeff McMahon, vice chairman and chief commercial officer of Enron NetWorks, said Enron was looking into developing a trading business in steel, data storage, and eventually grains, lumber, and shipping and transportation. Nobody gasped.

After all, the company was already moving away from concentrating solely on energy risk management and trading and into developing an online trading market for bandwidth products, physical metal contracts, pulp and paper, emissions credits, weather derivatives�more than just natural gas and power.

McMahon, spoke at a talk sponsored by Arthur Andersen about e-commerce and the so-called �new economy.�

He said EnronOnline was already executing 60% of all of Enron�s transactions. The new economy and doing business-to-business transactions online in McMahon's view are nothing but old-fashioned wholesale business transactions with more price transparency and an easier forum buyers and sellers to get together.

�There are at least 250 passive users of EnronOnline,� says McMahon. �They log on at the beginning of the day and log off at the end not doing one transaction.�

McMahon says these users want information about real-time pricing.

Enron is on the prowl for products sold under brand names but really are nothing but commodities. The company looks for products which are capital intensive, where scale and scope matters, and that are characterized by slow moving incumbents.

Enron wants to transform these existing products into commodities to be traded in the markets. Pulp and paper comes to mind, he says.

For example, even though the New York Times and Los Angeles Times both buy newsprint from separate branded vendors, the two newspapers really feel and look the same, he says.

Yet McMahon cautions not all products, especially those that are very specialized, can be transformed into tradeable commodities and not all will work in the B2B model of the new economy.

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