Swiss energy trader Mercuria eyes China electricity

Swiss energy trader Mercuria is looking to move into China’s newly opened power market, do more structured financing deals and invest in assets to make up for the cyclical ups and downs in traditional oil trading, chief executive Marco Dunand said.

Speaking during the Reuters Global Commodities Summit, Dunand said that the firm has been diversifying so as not to be at the mercy of price volatility and to instead have a good year.

Mercuria Group’s rivals have long lamented the historically narrow oil price range and only occasional price spikes that defined 2017 for further eroding already tight margins.

Dunand said the firm’s strategy was paying off as lower profit from trading this year was counterbalanced by the group’s other segments.

“We started to diversify two to three years ago. We’re more involved in assets and structuring in general,” Dunand said.

“This year, our trading results are probably a bit worse than last year but our structuring and assets results are better so overall, our profitability has remained in line with last year.”

In a new foray, Dunand said the trader was keen to participate in China’s giant power market that is in the process of opening up.

Mercuria is already a relatively big electricity trader in Europe and the US, and has ties to China via crude deliveries and Chemchina which holds a 12 percent stake in the firm.

“China has decided to open power trading in certain regions... we are participating in some of those local markets to better understand the supply and demand. We have put teams together that have started looking at it.”

In 2015, China was the world’s largest electricity producer, accounting for 24 percent of global production, according to a report by Cambridge University Energy Policy Research Group, and shifting to a market-based rather than State-run power market is part of the country’s current five-year plan.

China launched two power trading exchanges in 2016 and at the end of August this year, China’s State planner launched pilot schemes to allow spot trading in eight provinces and regions.

The country’s commercial capital, Shanghai, aims to open up 30 percent of its power market by the end of 2019.