Shell Buys Morgan Stanley’s European Gas, Power-Trading Book

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Royal Dutch Shell Plc agreed to buy Morgan Stanley’s European natural gas and power-trading portfolio in a deal that doesn’t include the bank’s traders.

Shell Energy Europe Ltd. will acquire Morgan Stanley’s book of physical and financial gas and power contracts, the energy producer said in an e-mailed statement Friday. Shell, the second-biggest oil company by revenue, didn’t disclose the value of the transaction.

Trading oil and gas helped Shell beat analysts’ earnings forecasts in the quarter ended March 31 as it profited from storing crude to sell later at a higher price. Shell’s trading business also allows it to sell more natural gas than it produces, helping the company take advantage of differences in prices around the world.

“Shell have been seeking to further build their presence in European power and gas for some time and this acquisition allows them to pick up market share quickly,” Shaun Smart, a principal associate at Commodity Appointments, said Friday by e-mail. “It’s interesting to see Morgan Stanley leave the market because, along with Goldman Sachs, they have traditionally been the bank most tied to commodities.”

The transaction didn’t involve any personnel, Sarah Bradley, a spokeswoman for Shell, said by e-mail.

Banks Exit

Morgan Stanley, which employed about 15 traders on its power and gas desk, was said to be winding down the business in May, a person with direct knowledge of the matter said at the time. The bank’s exit from trading power and gas in Europe follows similar moves by Deutsche Bank AG, Bank of America Corp. and Barclays Plc in the past two years.

About a quarter of the gas and power moves tracked globally by Commodity Appointments in the three months through March were away from banks, Smart said. Banks that remain in European power and gas markets have had to become more client-focused, he said.

“I would be surprised if Goldman and Citi et al left the market as there remains a natural position in the market for banks and their services, from both a liquidity and customer flow point of view,” he said.

Increased scrutiny by regulators including the U.S. Federal Reserve and politicians has prompted major banks to cut back or abandon their commodity businesses. JPMorgan Chase & Co. sold the bulk of its physical trading operations to Mercuria Energy Group Ltd. last year for $800 million.

Shell, BP Plc and Total SA are the world’s biggest energy traders, handling enough crude oil and refined products every day to meet the consumption of Japan, India, Germany, France, Italy, Spain and the Netherlands.