EON SE will start a U.S. power and natural-gas trading operation as Germany’s largest utility seeks to profit from North America’s shale-gas revolution.
The company, which already trades U.S. power and gas derivatives from Germany, will hire five traders in Chicago, executives at EON said. The group will trade physical power and gas, may lease pipeline and storage capacity and is looking to secure liquefied natural gas capacity from the U.S., they said.
EON, which has about 200 traders in its home town of Dusseldorf, is grappling with a stagnant market in Europe as a weak economy holds back energy demand. The company traded less power, gas, carbon permits and coal in the first nine months of 2012 compared with a year earlier. North America offers a growth as the boom in output from U.S. shale fields helps revive the economy by cutting industry’s energy costs.
“For energy trading, North America has become more important over the past 12 months because energy-intensive industry is seeing an renaissance thanks to the slump in gas prices,” Gareth Griffiths, EON Trading’s chief commercial officer for global merchant trading said in an interview in Dusseldorf.
In addition, the retreat of some banks from commodities markets offers a chance for others to expand, he said.
Gas consumption rose 3.1 percent in North America in the first 10 months of 2012 versus a decline of 2.7 percent in Europe, according to International Energy Agency data. The benchmark gas price in the U.S. dropped 11 percent over the past year while in Europe, costs for the fuel rose 13 percent over the last twelve months.
The U.S. gas price at the benchmark Henry Hub traded 1.2 percent higher at $3.26 per million British thermal units at 11:30 a.m. Berlin time, while its European equivalent, the Dutch month-ahead contract for gas, gained 0.2 percent to 27.57 euros a megawatt-hour, or $10.86 million British thermal units, according to broker data compiled by Bloomberg.
The U.S. shale gas boom has become a “game changer” for energy markets and cannot be repeated easily in Germany, the country’s environment minister Peter Altmaier said Feb. 12 at a conference in Berlin. The U.S. is burning more natural gas for power production instead of coal, while Europe is turning to coal as gas plants are losing money, Altmaier said.
EON will start trading physical U.S. power by November and natural gas at the start of 2014. Kevin Watler, director of power and emissions based in Dusseldorf, who joined the company last month, will be responsible for company’s U.S. trading team. Chicago will be the trading business’s first satellite office, five years after the company’s trading teams from across Europe were brought together in Germany.
EON’s trading and optimization unit, which is also responsible for long-term gas supply, saw profit jump in the first nine-months of last year after contract renegotiations with Russia’s OAO Gazprom. Earnings before interest, tax, depreciation and amortization were 1.96 billion euros ($2.6 billion) from 531 million euros a year earlier.
Proprietary trading reported 66 million euro loss on a decline in profits trading eastern European power and oil, according to a company filing.
EON trading and optimization employs 1,000 staff in Dusseldorf in western Germany, 300 of whom are British. English is the working language in the six-floor building overlooking the Rhine River, where the trading floor of about 200 occupies the top two levels. The team includes meteorologists to assess the impact of weather on power demand and supply from Europe’s growing number of wind farms and solar panels.
The company has a large shipping business with a fleet of ships under long-term hire to transport coal and is interested in expanding into LNG shipping, Griffiths said.
The value at risk, a measure of how much they stand to lose in a single day, at EON trading was about was 19 million euros in 2011, according to the company’s annual report. That compares to about 40 million euros at RWE Supply & Trading GmbH, the trading unit of Germany’s second-largest utility RWE AG which is already active in the U.S.
RWE started trading U.S. electricity in June. The team is based in Essen buying and selling power in the nation’s East coast market.