RWE Supply & Trading Expects Loss to Widen in 2012 on Gas Cost

RWE Supply & Trading GmbH (RWE), a unit of Germany’s second-biggest utility, expects its operating loss to increase further this year after rising crude prices boosted the cost of oil-linked natural-gas costs in 2011.

The unit, based in Essen, had a loss of 800 million euros ($1.05 billion) in the 12 months through December, compared with a shortfall of 21 million for 2010, parent company RWE AG (RWE) said today in its annual report.

RWE Supply & Trading buys gas in long-term contracts linked to oil prices from suppliers including Statoil ASA and OAO Gazprom, the world’s biggest producer of the fuel. The average price of Brent crude rose 38 percent last year to a record $110.91 a barrel on London’s ICE Futures Europe Exchange.

“RWE Supply & Trading is the bad bank for the gas business,” Leonhard Birnbaum, the company’s chief commercial officer, said today in Essen. “Everything on the contract side that’s not forwarded to the market ends up as a negative result with Supply & Trading, and not in other parts of the group, so Supply & Trading suffers a bit for the overall situation.”

The unit expects another operating loss this year, which will be “much more significant than in 2011,” RWE said.

“Prices linked to the oil market for purchasing gas for 2012 will continue to be much higher than those realizable when the gas is re-sold on the market,” it said.

The company’s energy trading result was “unusually weak” last year and it expects “a much improved performance” in 2012, RWE said, without disclosing details.

Proprietary Trading

The proprietary trading business did not reach the result of the year-earlier period “because individual trading strategies have proven wrong in the market because of event risks such as the crisis in North Africa” or the nuclear disaster in Japan last March, Birnbaum said. The trading result, measured in gross margin, was still positive, he said.

For comparison, profit last year at Electricite de France SA’s London-based unit EDF Trading Ltd. climbed 7.2 percent last year. Earnings before interest, tax, depreciation and amortization for the unit rose to 673 million euros last year from 628 million euros in 2010 because of short-term optimization of EDF’s power generation fleet in France, it said in presentation slides posted on its website on Feb. 16.

EON AG, Germany’s biggest utility, will publish results for its EON Energy Trading SE unit on March 14.

To contact the reporters on this story: Lars Paulsson in London at lpaulsson@bloomberg.net; Stefan Nicola in Berlin at snicola2@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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