Natural gas house of the year: BNP Paribas

BNP Paribas sees opportunity amid shale boom and withdrawal of other banks

Catherine Flax, BNP Paribas

BNP Paribas is one of a number of banks that have been making hay as others retreat from commodities in the face of declining revenues, tougher regulation and harsher capital requirements. While other banks have withdrawn from natural gas markets, the French bank has remained firmly involved, and says it has benefited as a consequence.

"If you take [any] given counterpart, in 2010 they may have been doing two trades with us," says Christoph Bilshausen, London-based director of European gas and power origination. "This same counterpart is now probably doing several more trades with us, as we have taken on additional business from competitors."

Being a French bank, BNP Paribas is perhaps best known for its activities in Europe, where it has been involved in the gas markets since 2001. During the past 18 months, however, it has also been busy building its business in North America. Given booming shale production and a retreat by competitors, the bank saw an opportunity to provide a much-needed service, explains Catherine Flax, New York-based head of commodity derivatives for the Americas.

"We are in the midst of a revolution in the US and in Canada with all that is happening with shale, [and] a decision was taken to further invest in this business," says Flax. "The changing landscape, the recognition that many banks were pulling back and that our clients needed us now more than ever certainly drove that decision."

In the wake of the US Dodd-Frank Act and curbs on proprietary trading under the Volcker rule, BNP Paribas sought to focus squarely on the needs of clients and capitalise on its strength lending to the energy industry, says Flax. It is one of a diminishing number of banks that continue to be active in physical gas, engaging in transactions such as offtake deals with producers, storage trades with midstream companies and flexible gas supply contracts with utilities and industrial end-users.

Part of what creates opportunities is when you have significant paradigm shifts

In recent years, the soaring production of shale gas has put North America's pipelines and other transport infrastructure under strain. While gas previously had to be transported north and east from the Gulf of Mexico towards areas of high demand, it now increasingly has to travel in the opposite direction. Market participants say that has given rise to a ‘bubble' in the northeastern US around the Marcellus shale – the country's largest producing shale gas basin.

In a complicated deal executed over a number of months last year, BNP Paribas purchased a large volume of shale gas from various producers in the Marcellus and shipped it to southern Texas on firm transportation, with an option to sell the gas to utilities at the Mexican border. The transaction was achieved via three different legs: the first shipped natural gas out of the Marcellus; the second extended an existing contract to ship the volumes south to a pipeline interconnection in West Virginia; and the third involved leasing capacity on a pipeline to take the gas from West Virginia to southern Texas. An option was negotiated on the last leg of the transaction to make primary delivery to a new pipeline interconnection with Mexican utilities, which was being constructed on the US side of the border.

"Part of what creates opportunities is when you have significant paradigm shifts," says David Samuels, head of commodities sales for Americas, who joined BNP Paribas from JP Morgan in June 2014. "That is what we have seen with the shale boom in the Marcellus region – it is leading to a lot of transportation projects, and that creates different opportunities."

In another interesting deal, BNP Paribas entered into a five-month hedging contract with a Canadian gas supplier in Alberta, where daily winter gas demand can vary hugely depending on weather conditions. The French bank offered the firm a flexible supply of physical natural gas from November to March, meaning the client must purchase a minimum volume per month, but has the ability to increase this when faced with colder-than-usual temperatures.

Clients praise the bank for its customer service. "They are a very good counterparty to execute with," says Mauricio Gutierrez, chief operating officer of Texas- and New Jersey-based utility NRG Energy.