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Mercuria Seeks Oil Tanks, Coal Mines in US Drive
03.03.2010

NEW YORK, Reuters (March 1) - Swiss-based global energy trader Mercuria is expanding its Cushing oil storage footprint and may buy shuttered U.S. refiners or coal mines as it deepens its expansion into U.S. markets, a top executive said.

Mercuria, which has already doubled its U.S. staff in the past two years, last week opened a new office in Houston, where former Merrill Lynch trader Jeremy Taylor will lead a team of 20 people into the U.S. power, gas and coal markets, Marco Dunand, Mercuria Energy Trading's CEO, told Reuters.

That team will likely grow to 30 over time as the company that veteran oil traders Dunand and partner Daniel Jaeggi helped found six years ago seeks to leverage its European and Asian success to crack the vast U.S. market, which remains attractive in spite increased regulatory scrutiny.

"Our perspective is to better understand the market. What we can bring is essentially an extension of what we have elsewhere in the world," Dunand said in an interview.

"Over time we may look into acquiring principally coal assets, and it could be that we get involved in some of the gas," he added. "The power assets would probably be a bit more complicated to buy and not on our priority list."

Mercuria, which traded 58 million tonnes or nearly 1.2 million barrels per day (bpd) of crude oil last year, has rapidly expanded from its precursor as a Polish-founded firm trading mainly Russian pipeline crude into the fifth-biggest independent trader in the world with a diversified portfolio of upstream operations, infrastructure and trading desks.

"We've been bringing a fair amount of crude into the US, this helps us further supply to inland customers, helps us to provide liquidity to some of the customers," said Dunand. "We have some storage in Cushing that helps us to understand the benchmark."

CUSHING EXPANSION

Mercuria holds holds short- and mid-term leases on 1.7 million barrels of storage at the Cushing, Oklahoma, oil storage hub, and has a long-term lease on 1 million barrels of storage tanks now under construction at the strategic hub, where NYMEX crude oil futures contracts are settled.

The new tanks include the use of a small truck rack.

The firm is also looking to expand elsewhere at a time when the market's contango structure makes it profitable to store oil, and many traders anticipate increased U.S. import/export activity as refiners shut down in the face of flat domestic demand and more cost-competitive plants abroad.

"Refinery closures may create opportunities for storage and we are looking at a couple of possibilities to acquire storage," Dunand said. He said they were not looking at Valero's Delaware City plant, for which a group including successful refinery investor Tom O'Malley is in talks.

With existing offices in Chicago and Connecticut, a subsidiary in California and a team in Canada, Mercuria now has a staff of 51 in the United States. It has also invested some $200 million in upstream assets.

Mercuria is among a number of overseas traders including Vitol and Russia's Gazprom that are expanding their U.S. operations, attracted by the liquidity in over-the-counter and cash markets and untroubled by the risk of tighter regulation and limited position size in futures markets.

"The discussion that we hear about the change in regulations is more based on leverage plays, and this is not our main focus," Dunand said. "We feel quite comfortable that this will not affect our business. We manage our business within the bands that might come into play."

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