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. Last Updated: 07/27/2016

Battle Over Energy Market Climaxes




LONDON -- A fight for control of Europe's largest energy market, the International Petroleum Exchange, reaches a climax Friday when a ballot on its future shows whether a last-ditch U.S. takeover bid has done enough to block a sell-off to European investors.


As IPE members prepare to vote on its ownership structure, some say a visit last week by top officials from the larger New York Mercantile Exchange won the U.S. bid priceless new support in the ranks of the London exchange.


"Its helped their cause, no doubt about that. They've got some of the big names on their side," said one dealer at the IPE, which runs the world benchmark Brent futures contract.


On Friday IPE members, who own the exchange under a mutual structure, will vote first on whether to demutualize, which requires a 75 percent approval.


If they assent, then a simple majority of members will have to decide whether to accept the IPE board's "Plan B" - to sell 70 percent of the exchange for pounds 25 million ($40 million) to five European energy firms and transform the exchange into a profit-making organization.


Barely 60 percent of IPE members voted in favor of Plan B in a June consultative ballot even before NYMEX - the world's biggest energy exchange - matched the bid in a move that set up an increasingly sour-tempered contest.


"I have a strong feeling that since last month's straw poll some members, including us, have changed their minds, and they've changed away from Plan B," a dealer said.


NYMEX's supporters say a full link-up with the IPE will cut costs, boost liquidity and create a powerful global entity to see off emerging electronic newcomers.


Trade in the two exchanges' crude oil and refined products futures contracts is already the equivalent of several times the daily consumption of physical oil.


Yet the structure of Friday's ballot could split NYMEX's vote and makes an outcome too close to call, IPE members say.


To buy itself time, the U.S. exchange is urging supporters to vote tactically against an initial demutualization plan.


NYMEX feels it cannot take the risk of allowing members a vote on Plan B, which needs only a simple majority to cancel a final third-stage vote on more talks between NYMEX and the IPE.


Whatever the result, the new owner of the IPE will have a powerful position to develop fledgling European energy markets like electricity and gas. Plan B allows members the certainty of knowing just how much compensation they will get for ceding control of the exchange. NYMEX has also yet to firm up some trading conditions in its proposal.


Yet there are concerns that the IPE board's choice - a consortium comprising BG, Distrigas, Enron, Nord Pool and OM Group - have no experience in running an exchange.


Some question how they could compete with a hostile NYMEX, which has already had talks with Eurex, Europe's biggest derivatives exchange, as it looks for openings in the region.


NYMEX has wooed traders by reiterating its commitment to open outcry, even though like the European bid it has reserved the right to take the IPE electronic after September 2001.


"NYMEX will probably look after the brokers better, especially as so many firms work on both exchanges," one dealer said.