Canadian markets would feel Enron's failure
'Everybody is exposed'
Claudia Cattaneo, Calgary Bureau Chief -- Financial Post
CALGARY - A collapse of Enron Corp. would jolt Canadian energy markets across the board, with many players expected to take losses, analysts said yesterday.
The Houston-based giant, which dominates natural gas and electricity trading in Canada, seemed headed for collapse yesterday after its rescue by rival Dynegy Inc. fell apart.
The company said it was taking actions designed to preserve value in its core trading and other energy operations, including a temporary suspension of all payments other than those necessary to maintain core operations.
Company officials would not answer questions about the implications for Canadian operations.
"Really, everybody [in Canada] is exposed because [Enron] is such a big player in gas markets and power markets," said Martin Molyneaux, research director at FirstEnergy Capital Corp. "I think everybody is going to take some kind of hit, but I don't think that anybody is exposed to them in a major way."
One large natural gas producer, PanCanadian Energy Corp., said it's assessing its position, but "we see our exposure as minimal," said spokeswoman Kimberly Benn-Hilliard.
The degree of exposure depends on contracts made through Enron, which acted as a middleman between producers of gas and electricity and end users like utilities, Mr. Molyneaux said.
"Enron is not an end user, Enron turns around and sells to somebody else, so it depends how these contracts get sorted out, because the end user needs the gas, and the producer still needs to be paid, so how do you carve out the Enron risk in between is what everybody is working on," Mr. Molyneaux said.
In most cases, exposure should be mitigated by the fact that many backed off using Enron for the past several weeks, he said.
Still, Leigh Parkinson, a principal at Risk Advisory, a Calgary consultancy, said it would have been difficult for many to unwind all their positions.
"Their stature is such that I have to think that people are exposed, and even if they stopped dealing with Enron two or three weeks ago, I am not sure that everybody would have been able to unwind exposures that they on their books prior to that," he said. "It would be unimaginable to me that the surrounding infrastructure in the natural gas trading environment here in Calgary would be immune to some measure of financial exposure."
Energy players at risk of losses could include natural gas companies with forward contracts at prices significantly above spot market levels, or utilities that purchased a fixed supply of gas that will have to replace the contract, Mr. Parkinson explained.
Enron's Canadian operation was heavily involved in natural gas, electricity and oil trading. The company also recently started selling electricity to commercial and small industrial businesses in Alberta.
Its share of the Canadian natural gas and electricity trading market was estimated to be as high as 40%, although it's been crumbling in recent weeks because of concern about credit worthiness.
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