ALL IN THE ENERGY TRADING GAME

A Fast New Financial Game Called Energy
January 19, 2007 (Business Week via Yahoo News)
- Energy consultant Peter C. Fusaro, chairman of New York-based Global Change Associates Inc. and co-founder of the Energy Hedge Fund Center, was among the first to notice the growing role of hedge funds and other financial players in the energy sector two years ago…

- Traders are attracted by volatility. In the 1990s we had pretty flat markets. We didn't have a lot of trading volume. Now we're seeing bigger price moves, $2 a day. We never saw that before…
- The trigger was availability of talent. Enron went down in 2001. Utilities started exiting energy trading. You had this meltdown of natural gas and power trading. Some of these folks started their own hedge funds, and some were hired by hedge funds….
- We had higher energy prices beginning in 2004. People wanted to come into energy because it was headline news.
- Banks are really the biggest player in this market. They have the capital base, the global positioning, the traders. They have the relationships, they're in project financing…
- This is a financialization of the energy markets, and it's immature. We size it at $3 trillion, compared to, say, $26 trillion in interest rate swaps. Energy is the world's largest business, at $4 trillion. It should trade at 6 to 20 times the physical market. The growth potential is enormous…

- Energy is a risky business. You've got headline risk, weather risk, geopolitical risk--it just goes on…There's no risk to the financial market ...but (hedge fund investing) is too risky for small investors. This is big money that should know the risks and afford to lose it. Energy trading is a zero-sum game…
- London's Intercontinental Exchange…launched West Texas Intermediate crude futures last February. It was the biggest launch ever in trading contracts, (and) a lot of it was hedge-fund-driven…If you're trading on the commodities floor, people know your positions…the size, the direction, the scale, the length of the trade. You don't know any of that in cyberspace…
- The global carbon emissions market was about $25 billion for 2006, and it's doubling every year. Once the U.S. enters a carbon-trading regime, the uplift will be incredible…[The money’s] coming from high-net-worth (individuals) and private equity. There's unprecedented interest in clean energy. ...When you put that together with the world's largest business--energy--it's going to be huge. It's absolutely a new asset class.