What China? Energy traders see money in the good old USA
LONDON (Reuters) - China may have overtaken the United States as the world's biggest oil importer, but America is now the land of opportunity for traders looking to profit off energy markets, thanks to changes brought by the shale gas revolution.
After a generation in which traders salivated over emerging markets, executives at the Reuters Global Commodities Summit this week spoke about the good old fashioned U.S.A. - soon to overtake Russia as the world's biggest oil producer - the way they once used to gush about BRICS.
"The shale oil revolution has been faster than people generally anticipated. The production increases for oil and gas have been quicker than even the most optimistic forecasts," said Torbjorn Tornqvist, CEO of Swiss trading house Gunvor, which earned its name as one of the main traders of oil from Russia.
"Five years ago the U.S. was net importing more than 2 million barrels a day of refined oil products, and maybe even up to 3 million bpd at the peak of the resource boom. Now it is a net exporter of around 1.2 million bpd. That's a huge swing in such a short period of time."
Freepoint chief executive David Messer said his biggest focus was North America as the production of oil and gas was increasing faster than the infrastructure can accommodate.
"That creates all sorts of logistics opportunities where we are involved," he said.
The changes in the United States are not only big, they are complicated, music to the ears of traders who thrive on market volatility and price differentials.
"The shale gas boom and plentiful supply of gas have created a series of very interesting and complex knock-on effects," said Daniel Jaeggi, co-founder of Mercuria. "If the U.S. burns more gas, what happens to the coal, and coal needs to find a way out of the U.S.?"
Tornqvist of Gunvor noted the opportunities to make money as "hugely efficient" U.S. refineries rev up production and become big exporters. Among the opportunities: the spreads between different types of crude needed for refining.
"There are obviously tremendous arbitrage opportunities given the logistical bottlenecks between domestic crude oils and imported crude oils," he said.
All that excitement is a contrast with China, where, despite huge volumes, there is little money to be made for freewheeling traders, thanks to a centralized system in which imports are largely controlled by state entities.
"This is going to be a big volume but very, very small margin business," Ian Taylor, chief executive of the world's top trading house Vitol VITOLV.UL, told the summit.
The global commodity boom of the past decade has turned little-known trading houses into multinational giants with assets across many continents and made their executives staggeringly rich.
Glencore Xstrata (GLEN.L) went public and is valued by the market at over $70 billion. Vitol remains private, owned by some 300 employees. With an annual turnover of $300 billion, it buys and sells more energy each year than ExxonMobil produces.
But to continue to make big profits, the trade houses need markets that are not only big but interesting.
China overtook the United States as the biggest net crude oil importer in September, but its rise offers few opportunities.
As its energy needs soared, Beijing sought to ensure stable supplies through national oil companies Unipec (0386.HK) and PetroChina (0857.HK), which account for nearly 90 percent of shipments. They purchase a lot of oil directly from producers like the Middle East or Venezuela. China is also expanding its own fleet of tankers, which could account for a fifth of the global fleet.
"Fundamentally, the number of barrels that are tradeable these days is shrinking," said Alex Beard, head of oil trading at Glencore.
Prospects might improve over time as Beijing is considering opening up trading licenses to private Chinese firms, said the chief executive of trader Mercuria, Marco Dunand.
But even if some market liberalization takes place, private traders will have to rein in their cutthroat instincts when the state is such a huge player.
"I think to do something on the larger scale in China you have to work with the (state Chinese) companies, not against them," Gunvor's Tornqvist said.
The U.S. market, by contrast, is not only big but interesting, and changing fast.
Cheap gas meant U.S. industry switched away from coal, making the country a large coal exporter. Soon it is expected to export gas itself in the form of liquefied natural gas (LNG). And although Washington still bans exports of crude oil, the United States has become a big seller of refined products.
Those traders who unlike Vitol, Glencore or Mercuria haven't yet built large U.S. operations, are keen to catch up.
Assets they might look to buy include parts of JP Morgan (JPM.N) commodities trading business, which the bank put up for sale this summer for $3.3 billion, including oil storage tanks in Canada and a global network of metal warehouses.
"To be a global player, which is our ambition, growth in North America is going to be a big part of our future. I would not exclude right now any growth... not only hiring people, but also buying into some positions," said Marco Alvera, who oversees trading at the Italian oil major ENI.
Even top tier banks, which have been squeezed by regulations in recent years and forced to retreat into trading on behalf of commodity clients rather than trading their own books, are eyeing the United States as a place to expand.
"The sleeping giant is U.S. gas. If it picks up it could get busy again for banks," Mike Bagguley, head of commodities at Barclays, told Reuters. "A global liquefied natural gas (LNG) market would be exciting for us. We could work for both sides of supply."
(Additional reporting by Julia Payne, Alexander Winning, Alex Lawler, Claire Milhench, Simon Falush, Dmitry Zhdannikov, Peg Mackey and David Sheppard in London and Jonathan Leff in New York; Editing by Peter Graff)
- Six people injured when camera catches fire at 30 Rockefeller Plaza
- Israel holds off on escalating Gaza barrage; West wants truce |
- Russia warns Ukraine after shell crosses border |
- Exclusive: YouTube weighs funding efforts to boost premium content - sources
- 'Excessive' rubbing of engine blades caused F-35 failure: Pentagon