Guernsey Shows the Fall of EnronOnline Affects Natural Gas Trade

10.08.2002

OKLAHOMA CITY – A study of natural gas prices at ten U.S. trading hubs conducted by Drs. Zhen Zhu and Donald Murry, economists at C. H. Guernsey & Company, has shown a decline in informational efficiency since the collapse of Enron and the closing of the EnronOnline Internet-based trading platform.

Informational efficiency is a measure of a market's ability to incorporate information into prices. In the gas markets, it also is a measure of the ease with which arbitrage communicates price changes among trading hubs and within the futures market.

Using two separate statistical techniques, the economists' analysis concluded there was a decrease in the randomness of prices, an increased separation between the spot and futures prices and a diminished overall market efficiency associated with the decline in informational efficiency.

Zhu presented the findings of the study at a meeting of the International Association of Energy Economists in Vancouver, British Columbia on Oct. 8, 2002. Zhu revealed that EnronOnline, during its existence from November 1999 until November 2001, served as a market shaper and a price leader, and during this period, the measures of informational efficiency improved over levels from prior periods.

“Because of its central role in the market, it is not surprising that the closing of EnronOnline, which accompanied Enron's bankruptcy, should impact the functioning of the natural gas markets,” Zhu said.

The economists also evaluated how price volatility changed from the period prior to the entry of EnronOnline, during its existence and since its demise. Although they determined the collapse of Enron sharply increased price volatility, this impact was short-lived. Their analysis showed the indices of price volatility at the ten trading hubs and in the futures market returned and remained at prior levels after approximately two weeks.


C. H. Guernsey & Company offers high quality engineering, architectural and consulting services to clients in the United States and abroad. The firm has provided innovative solutions for over 74 years. GUERNSEY has its headquarters in Oklahoma City with offices in Amarillo, Texas; Atlanta, Ga.; Dallas, Texas; Honolulu, Hawaii; Tulsa, Okla.; Rock Island, Ill.; and Tallahassee, Fla.