Risk and Energy Risk commodity rankings 2012: energy

Looking forward, market participants are waiting to see how liquefied natural gas (LNG) will affect the trading business. “The gas world is opening more with the development of LNG, which offers many opportunities: flexibilities, arbitrages and new players,” says Jean-Pierre François, deputy head of trading at GDF Suez. François also views interconnectivity as a key theme for the future. “With more interconnection, especially towards eastern Europe, we might have a very liquid driver and many basis spreads.”

As for electricity, key players in the European power markets expect 2012 to be difficult. “We’re in unprecedented times where there’s been an increase in unpredictable event-type risk. This means greater attention is now paid to some of the tail risks present in the market,” says Tom Sargent, director of trading for western European power and emissions at E.on Energy Trading, which placed first in the UK power markets.

Brokers

The broker rankings are dominated by the same names as in previous years – at least at the top of the tables, where Icap Energy again took first place in oil and natural gas, while Tullett Prebon was voted the top electricity broker.

In something of a surprise, though, a couple of boutique brokerages made it into the US oil and refined products categories. Eagle Commodities took the number-two spot in WTI crude, followed by SCS Commodities in third place. Eagle Commodities, which specialises in options, also appeared in the lists of the top-three brokers for US domestic crude, distillates, gasoline and residuals. Founded in 2008 by two former Tullett Prebon brokers, the firm debuted in the rankings last year.

James Zang, director of Eagle Commodities, says his team’s commitment to client service has helped differentiate the firm from larger and more established players. “We believe our clients value our discretion and ability to get deals done at the right price, above the name recognition of a major, but often impersonal, broking house,” he says.

But representatives of bigger brokerage houses are sceptical the boutique approach will work once Dodd-Frank compliance costs are factored in. “There’s been an explosion in the amount of crude options brokers in North America,” says Richard Giles, head of GFI Group’s commodities and energy brokerage. “At the last count we’re up to 55 shops. I don’t see that continuing. I think a lot of the new entrants into that market are going to find it very tough to operate under the new regulations.” Icap Energy’s Crum agrees, and believes consolidation is inevitable. “Smaller brokerage companies will need to be with a bigger firm like Icap to be truly prepared for the coming regulatory changes,” he warns.

Risk 2012 Commodity Rankings