RWE Expands LNG to U.S. Gas Trade as Banks Exit Commodities

RWE AG is building its trading operations from New York to Singapore in a bid to gain market share as banks exit physical commodities markets.

The trading arm of Germany’s second-biggest utility plans to buy and sell U.S. natural gas from its New York office and may increase staff from 10 people currently, according to Andree Stracke, its head of global gas and LNG origination. The Essen, Germany-based company last year opened offices in Jakarta and Mumbai and hired traders in Singapore for liquefied natural gas, coal and Australian power.

“Investment banks are all leaving the commodity business because it is difficult to make money in that area, which on the other side is an opportunity for us to move into niches which the banks leave,” Stracke said Jan. 28 in an interview in Vienna. “We make it very tailor-made. At some point you need to deliver.”

RWE joins companies including Glencore Xstrata Plc and Vitol Group in expanding energy trading as banks from Deutsche Bank AG to Bank of America Corp. retreat from commodities amid increased scrutiny from regulators. RWE is building trading operations abroad after Germany’s renewables boom cut volatility and power prices at home, Rolf Martin Schmitz, its deputy chief executive officer, said Jan. 22 in Berlin.

The 30-day historical volatility in next-year German power has fallen to 11 percent from 18 percent last Feb. 8 and 60 percent in January 2010, according to broker data compiled by Bloomberg. Price swings in Dutch day-ahead gas, the biggest market in continental Europe, dropped to 19 percent from 26 percent a year earlier.

Declining Volatility

“RWE Supply & Trading is a pretty ambitious company. On LNG we met that and on gas maybe not fully, but that’s not a big surprise in a market that is not very volatile,” said Stracke, a former chief commercial officer of Excelerate Energy LLC, a U.S. LNG-trading company based in Woodlands, Texas.

“The price range that gas has been traded within was very small and it is very difficult to make money,” he said.

RWE set up its LNG trading desk in 2012 and has so far chartered vessels, bought and sold cargoes, won a tender to Mexico and sold the chilled fuel to the Far East, said Stracke, declining to provide further details. His LNG team includes 10 people, compared with 20 in traditional gas trading, he said. The company is already buying and selling U.S. natural gas from Essen.

LNG Trading

“So far we have only chartered spot on the LNG side, but the plan is to trade on longer-term LNG shipping as well,” he said. “In the next three years we will see a major development on the LNG side. There is so much LNG from the U.S. uncommitted and at the same time the Australian LNG is committed. I believe the trading market will pick up significantly in two to three years because there will be plenty of LNG around.”

Global LNG exports fell 3.5 percent from a year earlier to 316 billion cubic meters in the 12 months through November, according to Poten & Partners Inc. data compiled by Bloomberg Industries. Exports will rise to 251.8 million metric tons in 2015 from 236.3 million in 2014, 231.9 million in 2013 and 240.3 million in 2012, Energy Aspects Ltd., a London-based consultant, said today in an e-mailed research note.

Bank of America and Deutsche Bank have shut European power and gas trading units in the past two years as regulators seek to toughen financial market rules and curb speculation. Glencore started an LNG trading desk in September after hiring four traders from Morgan Stanley. Mercuria Energy Group Ltd., a closely held trader, hired Roger Jones from Barclays Plc in 2012 to lead non-oil trading in Geneva.

Fertilizers, Metals

Morgan Stanley still has about 15 people trading European power and gas, the New York-based bank said yesterday.

RWE is also starting fertilizer trading with two staff in London and began metals trading from Essen, Stracke said. It will buy and sell coal from Jakarta and coal, fertilizers and LNG in Mumbai.

“We are expanding in businesses which are closely related to our core competencies, with clear price indications, and mainly for hedging purposes,” Stracke said. “And we will see how successful we are, so far the signs have been pretty positive.”

Before it's here, it's on the Bloomberg Terminal.