Koch to Start EU Power Trading as It Plans LNG ExpansionAnna Shiryaevskaya
Koch Supply & Trading, a unit of Koch Industries Inc., will start buying and selling European electricity and expand its liquefied natural gas business to take advantage of a globalizing market for the fuel.
The trading unit of the second-largest closely held U.S. company by revenue is hiring one or two power traders in Geneva and plans to be ready for trading next year, Stephen Cornish, director of Koch Supply & Trading, said in a telephone interview from London. The company will expand into Turkey and the Caspian region in 2015 and open an office in Tokyo for its LNG business this year, he said.
Koch is expanding in power as companies from Bank of America Corp. to Cargill Inc. pull out of the market as prices trade near a nine-year low after the euro region’s longest recession cut demand. As many as 120 European power and gas traders lost or changed their jobs last year in the biggest shakeout of the industry since the collapse of Enron Corp. more than a decade ago.
“We don’t build our business based on whether the markets are up or down,” Cornish said. “There are a lot of counterparts out there that are re-evaluating their business models and are looking for high quality counterparts to do deals with. In that scenario we think we can add value.”
German year-ahead power, a European benchmark, fell to the lowest since 2005 in April and traded at 34.50 euros ($46.93) a megawatt-hour at 10:17 a.m. London time today, according to data from European Energy Exchange AG. Thirty-day volatility fell to 4.3 percent today, its lowest since June 2003.
Koch is looking to expand into mainland European power markets from Geneva, its base for gas trading and origination in Europe, the Middle East and Africa, after a separate London-based business focused on the U.K. exited the market in 2011, Deanna Altenhoff, a spokeswoman for Koch, said June 23 by e-mail. Koch Energy Europe Ltd. traded natural gas, power and emission credits, according to a company statement in 2010.
Koch started trading crude oil in 1969 and added global gas and LNG to its portfolio in 2012, according to the company’s website. As part of a large industrial conglomerate, which itself is a gas consumer, Koch benefits from dealing with industrials, which “want to talk to like-minded companies,” Cornish said.
“When it comes to power, we believe there should be an opportunity for us there too,” Cornish said by telephone from London on June 13. “We are getting requests to get involved in that market to map over the success that we have had in European natural gas.”
Koch Supply & Trading plans to enter Turkey and the Caspian region next year, he said. In addition to Geneva, the company has an Amsterdam office for its gas sourcing needs and a presence in Dusseldorf, Germany, for some of its marketing activity, he said.
The company’s LNG business is based in London with trading and origination operations in Singapore and Houston and satellite offices in Rio de Janeiro and Dubai. The company may expand further in the Far East and in South America, if opportunities arise, he said.
Renewables, shale gas, the 2008 economic crisis and the Fukushima nuclear disaster in Japan have all impacted the market, Cornish said. While the global LNG market will remain tight through next year, trade will start to increase in 2016 as Australian projects now under construction start producing the super-chilled fuel and U.S. exports begin, the International Energy Agency said in its medium-term natural gas market outlook on June 10.
Koch has done LNG deals in both the Atlantic and Pacific regions, according to Cornish.
“We have a natural need to be in the market,” he said. “If you are a natural market participant with a global reach, a great balance sheet, and lots of physical activity, you have a significant role to play.”