New players welcomed as banks scale down LNG trading

Low volatility in European natural gas and power markets, coupled with tougher EU financial regulation, has severely diminished trading’s appeal to many banks.

In recent months, corporations including Barclays, JP Morgan and Merrill Lynch have radically scaled down or even shut up shop altogether on their gas and liquefied natural gas (LNG) trading activities.

But many in the sector believe the retrenchment by so many banks provides many opportunities for Europe’s key utilities (owners of most of the union’s gas and power assets), as well as smaller, more dynamic trading houses, to step into this void and reinvigorate the market.

As Europe’s gas markets continue to be impacted by the growth of Asian markets, and more entwined in the globalisation of LNG supply and demand, leading aggregators and suppliers of gas are driving fluidity and new opportunities in trading that European players cannot ignore. The knock-on effects of new LNG supply and growing LNG demand in Asia will, ultimately, affect the prices paid and the contractual clauses agreed back in Europe – and likely impact on much-needed investment into European infrastructure.

But while the majority of big players are opting to get out of the market, Citigroup is not scaling back, having recently expanded their European gas and power trading desk with ambitions to fill the gaps left by others.

David Brookes, Head of EMEA Gas Trading at Citigroup Global Commodities, states that: “Citi’s major assets are its clients, and in the current market environment we see their risk management needs increasing across European Gas Markets.”

The question remains: can the smaller trading houses and utility companies share enough of the pie, alongside banking corporations such as Citi, to ensure the gas trading market in Europe keeps the industry buoyant and attractive to investment?

A leading industry event dedicated to European gas trading and origination will bring together many of the new players in the space, taking place in London this October. The 29th annual European Autumn Gas Conference will, for the first time, also dedicate a specific day to the interests of senior professionals working in the procurement and trading of gas with a “Trader’s & Originator’s Networking Forum” – an unprecedented opportunity to gauge exactly where European gas and LNG trading is headed.

Press Release, August 6, 2014; Image: Fosmax LNG