Key Takeaways
- • Citadel, the $28bn Chicago-based hedge fund led by Ken Griffin, traded more than 450bn cubic feet of US natural gas in 2017, more than triple its 2016 volume, according to a new regulatory filing.
- • The 2017 volume exceeded total daily US gas consumption of 74bn cubic feet over roughly six days and equaled more than a month of residential demand, per the Financial Times.
- • Citadel is one of the few hedge funds that trades physical gas, rather than limiting exposure to futures and options, a business it established in 2014.
- • The commodities unit is expanding under Sebastian Barrack, who joined from Macquarie a year earlier, and hired about 20 staff from London-based Cumulus, which is shutting down.
- • Citadel's 2017 volumes place it alongside physical merchants such as Vitol, which bought 549.7bn cubic feet and sold 541.3bn in the US market that year.
Summary
Citadel, a $28bn hedge fund led by Ken Griffin, traded enough natural gas last year to meet more than a month of US residential demand, according to the Financial Times. That activity makes the Chicago-based firm an unusual participant in a market dominated by merchants, energy producers and utilities. Most hedge funds confine their gas trading to futures and options, which provide price exposure without the logistics of handling the fuel. Citadel buys and sells physical molecules over North American pipelines, a business it established in 2014.
The firm's commodities arm is one of five investment strategies within Citadel and is expanding under Sebastian Barrack, who joined a year ago from Macquarie, the Australian bank with a large natural gas trading book. Last month, Citadel hired about 20 people from Cumulus, a London-based energy and weather hedge fund that will shut down. In 2016, Citadel acquired a portfolio of western US gas pipeline capacity from WPX Energy. FERC filings show contracts on pipelines including Kern River Transmission, running from Wyoming to California, and Rockies Express, running east from Colorado. An energy department report also showed the firm imported nearly 20bn cubic feet of gas from Canada last year.
According to a new filing with the Federal Energy Regulatory Commission, Citadel bought 475.1bn cubic feet and sold 456.3bn in the US physical market in 2017, up from 133.5bn bought and 118.6bn sold in 2016. Total daily US gas consumption was 74bn cubic feet, per government data. FERC defines physical transactions as obligations to deliver gas at a specified location and time, though deals may be unwound before delivery. Sale volumes reported by all companies to FERC totalled 65.4tn cubic feet in 2016, according to Cornerstone Research, more than double US consumption.
Citadel's volumes place it in the company of physical merchants. Vitol bought 549.7bn cubic feet and sold 541.3bn of wholesale US gas in 2017, and Castleton Commodities International, backed by Paul Tudor Jones and Glenn Dubin, bought 467.1bn and sold 543.5bn in the same year. Barrack said: "We continue to grow our commodities business strategically, and while trading physical natural gas is a little bit unusual for a hedge fund, it is additive to our existing business." The FT notes that volatility in US gas markets has halved over the past decade as shale supply has grown, reducing the price swings that once made gas a profitable strategy for commodities hedge funds, though pipeline hub prices still move sharply.
The firm's commodities arm is one of five investment strategies within Citadel and is expanding under Sebastian Barrack, who joined a year ago from Macquarie, the Australian bank with a large natural gas trading book. Last month, Citadel hired about 20 people from Cumulus, a London-based energy and weather hedge fund that will shut down. In 2016, Citadel acquired a portfolio of western US gas pipeline capacity from WPX Energy. FERC filings show contracts on pipelines including Kern River Transmission, running from Wyoming to California, and Rockies Express, running east from Colorado. An energy department report also showed the firm imported nearly 20bn cubic feet of gas from Canada last year.
According to a new filing with the Federal Energy Regulatory Commission, Citadel bought 475.1bn cubic feet and sold 456.3bn in the US physical market in 2017, up from 133.5bn bought and 118.6bn sold in 2016. Total daily US gas consumption was 74bn cubic feet, per government data. FERC defines physical transactions as obligations to deliver gas at a specified location and time, though deals may be unwound before delivery. Sale volumes reported by all companies to FERC totalled 65.4tn cubic feet in 2016, according to Cornerstone Research, more than double US consumption.
Citadel's volumes place it in the company of physical merchants. Vitol bought 549.7bn cubic feet and sold 541.3bn of wholesale US gas in 2017, and Castleton Commodities International, backed by Paul Tudor Jones and Glenn Dubin, bought 467.1bn and sold 543.5bn in the same year. Barrack said: "We continue to grow our commodities business strategically, and while trading physical natural gas is a little bit unusual for a hedge fund, it is additive to our existing business." The FT notes that volatility in US gas markets has halved over the past decade as shale supply has grown, reducing the price swings that once made gas a profitable strategy for commodities hedge funds, though pipeline hub prices still move sharply.
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