November 6, 2014 / 10:25 PM / 4 years ago

Freepoint expands U.S. natgas, sees oil 'conversion' play

NEW YORK (Reuters) - Freepoint Commodities is expanding its U.S. natural gas trading team, betting that rising exports and the growing substitution of liquefied natural gas for liquid motor fuels will open up new opportunities in a long-subdued market.

After nearly four years of growth, Chief Executive David Messer says the Stamford, Connecticut-based merchant has “largely” completed efforts to build out its diverse trading portfolio, from crude oil in the United States to metals in China, but is still growing in select areas.

Freepoint has hired two natural gas traders for its U.S. Western markets desk over the past weeks and expects further hires in coming months, as it finds more and more customers eager to lock in deals for delivery physical commodities. The group has also built out its crude and product teams this year.

“One big theme is conversion. There are major opportunities to substitute cheap fuels for more expensive ones. We’ve evaluated a variety of opportunities” involving switching out diesel or other fuels for natural gas, Messer told the Reuters Commodities Summit this week.

He declined to provide any details, but said the company was “taking a hard look” at opportunities in liquefied natural gas (LNG). Waterborne LNG trading is a niche market dominated by a handful of large companies, but the onshore market in North America is expanding as more and more truck and heavy vehicle operators switch from costly diesel to cheaper shale gas.

After several years of hiring traders and teams around the globe, many of them former employees of Sempra Commodities, the trading house Messer ran for more than a decade, Freepoint has achieved the degree of breadth it needs, he says. It now has 254 employees, up from 230 a year ago, in 12 global offices.

“At any point in time, there may be something interesting happening in one or two markets while others may be quiet,” he said. “We need to have a diverse portfolio - we’ve now largely established that.”

Not long ago the U.S. natural gas market looked headed for a long period of depressed volatility. Hydraulic fracturing had unleashed decades’ worth of domestic gas supplies, most of it trapped in the United States by a lack of export terminals.

But trade in local physical natural gas hubs - known as “basis” trading - has picked up quickly in recent years, with transportation bottlenecks proving difficult to unblock and the whipsaw volatility of last winter’s Polar Vortex rekindling demand for hedging and supply deals.

“There’s a lot of gas out there in the market - but moving it around from the supply areas to demand is not as easy as merchants thought it would be,” said Mike Beck, executive vice president and co-head of trading at Freepoint.

“Customers are starting to realize that there’s value in someone helping manage their risk,” he said. “When they need gas on a spot basis we have the flexibility to deal with their demands.”

Editing by Andrew Hay

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