Energy Risk Awards 2016
Hanging on the wall at Javelin Global Commodities' London headquarters is a framed map of the Northern Appalachia and Illinois basins, the largest coal-producing areas in the US. A gift from Ohio-based coal miner Murray Energy – one of Javelin's main shareholders – it shows a number of Murray's mines, as well as coal-fired power plants that the company supplies with fuel. The plants are labelled ‘operational' and ‘at risk of closure'.
That serves as a reminder of the challenges faced by the coal industry amid mounting environmental regulations and one of the worst downturns in coal prices in decades. As the shale boom has unleashed a surge in US natural gas production, many utilities have shuttered their coal-fired plants and switched to cheap, clean-burning gas instead.
"Coal is head-to-head with gas in these areas," says Peter Bradley, London-based chief executive of Javelin, a start-up commodity merchant that will shortly celebrate its first anniversary. "Coal generation is dependent on how it can compete with gas and that is critical to the future of Javelin. But coal can compete, there is no question."
Javelin was founded in June last year with backing from Murray and German utility E.on. Upon its formation, Javelin signed a long-term export marketing and domestic advisory agreement with Murray, which was bolstered two months later with an agreement to act as the exclusive marketer for Murray's Colombian coal mines. Meanwhile, E.on provided the new firm with a long-term hedging and credit line as well as its ocean freight capabilities. When the German utility spun off its conventional generation and energy trading assets into a separate company on January 1, E.on's stake in Javelin went to the new company, called Uniper.
Before Javelin, Bradley spent seven years at Goldman Sachs, most recently as the bank's head of global bulk commodity trading. He says the challenges faced by the US coal industry have presented opportunities for his firm, which can help miners like Murray move the fuel from the US to other demand centres around the world.
"I think coal will always play a role in the world's electricity grid. But it is moving away from the West and towards developing countries because it is a very low-cost form of electricity," he says. "In the Western hemisphere, coal is fighting a rear-guard action, but there is still demand for low-cost electricity in the Far East, for example."
Besides its London headquarters, Javelin has offices in Houston, New York, Switzerland, Israel and Singapore. Its 23-strong team consists of seven commercial traders and investment officers, five sales and marketing executives and 11 back-office staff. Key employees include Bradley's former Goldman colleagues Julien Reipert and Dirk Detering, who traded physical and financial coal and freight at the bank.
Since its launch, Javelin has moved cargoes of seaborne coal and provided hedges for miners and utilities. In the roughly six months it was in operation in 2015, it shipped 2.7 million tonnes of coal, a figure Bradley expects to reach eight to 10 million tonnes this year. Currently, the firm has 35 counterparties in Belgium, Brazil, Chile, China, Denmark, Germany, Guatemala, India, Indonesia, the Netherlands, Panama, Spain and the US.
Bradley says he hopes to fill the void left by banks that have left the physical coal space, while also competing with commodity trading houses that tend to be "inwardly focused" rather than client-driven. Despite the coal industry's struggles, he is bullish about Javelin's prospects.
"You need tough times for companies to trim the fat and get down to the muscle of how the whole industry operates," he says. "Coal is going through that right now – the industry has its back to the wall trying to work out how to survive and change, or else coal will die. We go and visit miners, and people are listening."
Javelin has big ambitions. It has expanded into iron ore, coking coal and the crude oil complex, and Bradley says it is looking into investing in coal-fired generation assets.
Counterparties say Javelin is filling a void. "In six months they set up a company with a lot of growth potential in a space where there are not many competitors," says Gustavo Fernandez, Düsseldorf-based director of coal and freight at Uniper Global Commodities, formerly known as E.on Energy Trading.
"Most traders buy and sell to make a profit, but Javelin also provides risk-management tools and expertise for coal producers, which is needed," Fernandez explains. "If you look at the bankruptcies of coal producers in the last year-and-a-half, they would have been better off hedging all of their exposures."
The week in Risk.net, May 19-25 2017Receive this by email