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After a few years of roughly stable payouts for many of Europe’s energy traders, big bonuses are back for the cream of the crop.
The best traders in natural gas to power can look forward to handsome rewards after navigating markets that last year sparked to life with more bullish trends and a good dose of volatility. More people than previously will enter the seven-figure bracket, according to recruiters surveyed by Bloomberg.
Expectations across the board is for about 20 percent more in compensation compared with the previous year. And the best are looking at a total pay in the range of $2.5 million to $3 million or more, according to Peter Henry, managing director at H.W. Anderson Ltd., who has hired for utilities, banks and trading houses for more than a decade.
Last year’s price surge was to a large extent driven by a revival in the carbon market as regulators tightened supply. The cost of permits tripled, beating all other major commodities, and sent power prices surging. Companies from Gunvor Group Ltd., one of the largest independent oil traders, to Citadel LLC are expanding again or returning to the market after the industry retrenched with the lull in prices that followed the last financial crisis.
“The market has been good with the right type of volatility and clear trends,” said Jonathan Funnell, head of gas and power at recruitment firm Proco Commodities Ltd., which lists Trafigura Group Ltd. and PetroChina Co. as clients. “The carbon rally has had a knock-on effect for power and the whole fuels complex. Good traders should have been able to make money.”
The surge in prices could continue this year. BloombergNEF said on Monday that carbon futures could triple, which would spur further gains in other markets, including electricity. German benchmark power contracts jumped 44 percent last year, the most on record.
The bullish trends made the markets more interesting again for the biggest trading houses, as well as hedge funds. That means more hiring of staff from utilities, which for some are the springboard to a career in trading. And they are not the only ones in demand, experienced analysts are also highly sought after.
Big Pay Day
Traders tempted to leave utilities could be “young professionals who haven’t yet had a big pay day,” said Henry. “They do want to test themselves and it often comes after a good year.”
Profit at Electricite de France SA’s trading unit in London jumped 74 percent to 633 million euros ($721 million) last year after the company turned the market volatility to its advantage. Proprietary trading at Swedish utility Vattenfall AB is “performing really well,” Chief Financial Officer Anna Borg said on a conference call, declining to be more specific.
Traders in the liquefied natural gas market also “had a good year” in 2018, said Peder Bjorland, vice president at Norway’s biggest energy company Equinor ASA. Prices jumped to the highest in four years, while activity in both the physical and futures markets soared.
But all markets moves were not fundamental. Trade wars and sanctions had “a massive impact” on commodity markets, and that created some big winners and losers, said Douglas Ferguson, managing director at Kariba Search in Singapore.
“Although most traders wouldn’t dare to admit it, a lot of their 2018 profit was generated more by luck than skill,” Ferguson said.
More active markets, coupled with the general trend toward electrification and the shift away from fossil fuels have meant that trading houses are increasingly looking to diversify beyond oil, their staple commodity for decades.
Gunvor, which set up power and gas desks about a decade ago before scaling down, has hired a team of traders from Trailstone. Trafigura expects its expansion in natural gas to continue and “sees further opportunities to build our position in southern and eastern Europe,” according to its 2018 annual report. Castleton Commodities International LLC bought a Dutch power plant in 2017, its first asset purchase in Europe.
Billionaire Ken Griffin’s Citadel investment firm hired Peter Brewer, the founder and Chief Investment Officer of weather-driven hedge fund Cumulus, along with about 20 traders and analysts.
Cumulus was among the first specialist traders who began focusing on short-term gas and power markets, where the weather is one of the biggest price drivers. A decade on, the impact of the sun and the wind is only increasing. In Germany, Europe’s biggest power market, renewable energy became the biggest source of electricity last year, beating coal.
And as energy trading is becoming more and more data driven, a good analysis team is a prerequisite, not just to get an edge, but to stay in business as millions of data points covering everything from Nordic rainfall to sunshine in Spain need to be taken into account. And cargoes with gas are now sailing to Europe from everywhere from the U.S. to Russia and the Middle East.
That’s driving demand for analysts with experience and a good track record, according to recruiters. Many left the industry as investment banks from Barclays Plc to Deutsche Bank AG exited or scaled down their commodities operations earlier this decade and utilities shrank trading during the lull years.
Those who stayed in energy, and senior fundamental gas analysts in particular, have seen “a big hike” with compensation rising as much as 50 percent from two to three years ago, said Anthony Baron, a director at Eleven Recruitment.
And with the International Energy Agency saying that LNG is on course to overtake shipments via pipelines by the middle of the next decade, gas now has to be seen as a global commodity, which means it’s vital to know all the fundamentals, according to Equinor’s Bjorland.
“The market is short analysts and good people are in real demand,” said Funnell. “There has been an explosion of data and the need to analyze this is becoming ever more important. Desks that survived without it and relied more on relationships now realize they need to build out.”
All the data is also transforming the role of the modern power trader. More and more utilities and specialist companies are now using automated systems to buy and sell electricity -- sometimes just minutes or hours before delivery.
In Aarhus, Denmark’s second biggest city, a whole new industry has emerged focused on short-term power markets. Trading company MFT Energy said it has hired staff from local competitors, while peer InCommodities are hiring both traders and software developers this year and next, Chief Executive Officer Jesper Severin Johanson said by email.
“It is all about data and programming skills,” said Henry from H.W. Anderson. “Power is very tech and programming driven, and these skills are the biggest trend in the power trader hiring.”