Goldman Sachs Looks to Open New Tokyo Desk to Trade Profitable Power Futures

Post-energy crisis hedging enthusiasm is prompting Goldman Sachs Group to launch plans for a Tokyo desk to trade Japanese power derivatives as trading volumes for Japanese power futures on the European Energy Exchange are set to soar by up to 3X.

An executive with the European Energy Exchange (EEX) told Reuters on Wednesday that trading volume in Japanese power futures could even triple this year, citing the high demand for hedging among utilities, consumers and financial traders following last year’s energy crisis.

The need for hedging was laid bare in 2022 amid extreme energy price volatility, with an EEX executive telling Reuters that this was a “wake up call” with regards to risk management tools.

Japanese power futures were launched on the EEX in May 2020 and saw a major spike in trading volume in 2022. That trend has continued into 2023, with EEX telling Reuters that 7.6 TWh were traded from January through May–more than for the 12 months in 2022 combined. Now, trading volumes are on track to at least double last year’s take, if not triple.

Japan has the fourth-largest power market in the world.

Hedging is used by oil and gas producers to protect themselves against market fluctuations during times of volatility when they typically use a short hedge to lock in oil prices if they believe they will trend lower in the future.

While oil prices peaked in mid-2022, producers with minimal hedging found themselves exposed to the highly volatile markets. Standard Chartered noted last month that despite this exposure, there had been no significant rebound in oil hedging by U.S. producers over the previous three months.

On Wednesday, S&P Global cited trading giant Trafigura as saying that overall trading volumes of crude and crude oil products in the fiscal six-month period were down 14% year-on-year, due in part to the reduced availability of hedging in derivatives markets.

About Parvin Faghfouri Azar

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