* Trading house pushes into market dominated by energy
* U.S. spot supplies expected to help dislodge monopolies
* Traders eye massive arbitrage profit margins
By Oleg Vukmanovic and Henning Gloystein
LONDON, June 6 Commodities trading giant
Glencore Xstrata's entry into high-margin liquefied
natural gas (LNG) trading could mark a turning point for a
market long constrained by the grip of major oil companies on
Glencore has lured a four-person team of LNG traders in
London and Singapore from Morgan Stanley, which is
reducing its commodity trading.
Dealers said the move could trigger a second wave of new
entrants keen to exploit price differences between U.S.,
European and Asian gas markets.
LNG is among the fastest growing commodity markets as
increasing volumes of super-cooled gas are shipped from the
Qatar, Nigeria, Indonesia and other countries.
Most LNG trade operates on static long-term agreements
controlled by the major oil companies and a few producer
But trading houses such as Glencore and arch rival Vitol are
betting that the advent of U.S. LNG exports from 2015 spurred by
a boom in shale gas will create space for new entrants.
"What has stifled trading is that nobody could get anything
much to trade," the former head of LNG at a major European
energy company said.
"The introduction of U.S. volumes linked to (benchmark U.S.
gas price) Henry Hub changes everything. The upside is huge and
the entry cost is just some salaries," he said. "It's time for
the trading houses to give it a push again."
"LNG will continue to be the fastest growing sector of the
international energy business for many years," Vitol says on its
The trading houses also hope to exploit spot trading
opportunities to Asia at a time when European gas trading desks
are struggling from low prices and demand in economically
The U.S. shale gas boom and near record low prices at $4
per million British thermal units (mmBtu) has led companies to
build LNG export terminals, boosting the supply of cheap
uncommitted volumes, which traders can sell to Asia for as much
That spread, or arbitrage, as well new supplies from the
U.S. and Australia later this decade, should boost spot trading
liquidity, and potentially iron out price differences between
Cargoes of LNG can change hands for as much as $50 million
each and cash is gushing in to industry leaders such as Shell
, Total and BG Group. Their overall
trading profits are increasingly supported by LNG trade.
Commodities trading houses such as Glencore, Vitol and
Gunvor have made efforts to challenge that dominance.
"Glencore is the type of company that others will follow
...so hopefully it is a sign of people coming back into the
market," an executive with a top LNG shipping company said.
Morgan Stanley's LNG trading desk was seen as a big strength
of its commodities trading division.
Yet many banks are downsizing their commodities desks
because of toughening regulations on proprietary trading, where
the banks trade on their own behalf instead of for clients
seeking to hedge energy price risk.
Three of Morgan Stanley's LNG traders are based in London
and one is based in Singapore, three sources with knowledge of
the move said. Information on the timing of the moves was not
Morgan Stanley and Glencore declined to comment.
"The LNG guys were the star performers of the European power
and gas desk and management tried hard to keep them on board,"
one trader said. "It will be difficult to replace these guys."
The traders joining Glencore are Maggie Jia, Rajiv Panicker,
Lou Montilla and Luis Lesmes, other dealers said.
While trading activity on the spot LNG market is rising,
barriers remain as the sector is still dominated by long-term
deals between buyers, such as European and Asian utilities, and
sellers such as Qatar, the world's top LNG exporter.
New players need access to specially-designed LNG tankers,
to the LNG source and in some instances to terminals.
For a financial player, Morgan Stanley has been particularly
active trading LNG, especially in sales to Argentina and Spain.
Vitol won a Argentina contract last year.