By Alex MacDonald
LONDON--Commodities titan Glencore Xstrata PLC (GLEN.LN) set up
a new liquefied natural gas team last week to take advantage of
opportunities in the burgeoning physical LNG market, a person
familar with the matter said.
Glencore Xstrata hired four former Morgan Stanley (MS) traders
who opened Glencore's new LNG trading desk last week, the person
said. The team is based in London and Singapore, he added.
Glencore Xstrata has expanded into LNG trading to take advantage
of opportunities for arbitrage in the LNG physical market
geographically and by blending products in order to achieve higher
premiums for its products, the head of Glencore Xstrata's oil
operations, Alex Beard, said last month.
"LNG, I think fits more naturally, more properly within a
physical trading house than it does within a bank and that's why we
feel that the LNG market has now got to a scale and the size that
is interesting for us to trade physically, " said Mr. Beard.
"That's why we have an LNG team starting in September, looking for
those physical LNG trading opportunities," he added.
Mr. Beard said LNG is of particular interest to Glencore Xstrata
because it trades more like oil than natural gas. In other words,
LNG can be put on a ship and traded globally, thereby increasing
the potential for arbitrage opportunities. Meanwhile natural gas
tansported by pipe has limited arbitrage opportunities because it
can only reach specific destinations and in fixed quality grades.
Piped natural gas is better suited for financial derivatives
trading, a service traditionally provided by banks, Mr. Beard
said.
On the oil side, Mr. Beard said that the pull back of large
banks such as JPMorgan from the commodity markets, particularly in
oil, is creating a opportunity for Glencore Xstrata and other
physical traders to fill the gap.
After spending billions of dollars in a decades-long expansion
into all corners of the raw-materials business, Goldman Sachs Group
Inc, JPMorgan Chase & Co and Morgan Stanley are trying to sell
their physical commodities operations due in part to stricter
banking rules regarding capital requirements and increased
regulatory scrutiny over bank ownership of physical assets such as
oil pipelines and metal warehouses.
"JPMorgan certainly was bigger in the last three or four years
than before. So... there may be more opportunities for trading
companies," he said, indicating that trading companies could
potentially provide financing in return for off-take agreements, a
service that banks have been in the habit of providing.
-Write to Alex MacDonald at alex.macdonald@wsj.com
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