Goldman's 100mm wrong bet on Natural Gas

Mr.Cheese's picture
Rank: Baboon | banana points 104

I'm sure there is a better article, but still good nonetheless. Essentially states that GS was long DOM/Eastern nat gas basis that went from -.30 to -1.30 cents. This caused a 100mm trading loss. This is a great example of the volatile nature of the energy markets and how one way bets like this can really blow up in someone's face. The amount of size you have to have to lose that type of coin is significant.

I hear this is also what caused Vitol to lose a lot of $$ on a similar position, although i heard theirs was back-end of the curve dom south. I'm sure this caused a few people to get let go. I'm not sure if this was all one trader, although most likely was one traders book as I can't see how many east gas traders GS has. I've heard of guys getting let go for much much less of a loss than this.

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Comments (25)

Aug 20, 2017

heard Citadel lost a similar amount trading NE basis. Everyone involved got turfed. I think alot of shops were on the wrong side of this NE trade. However most shops cant but on the size that Citadel/GS can put on....

I havent heard of any of the Traders at GS getting turfed however

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Aug 20, 2017

I haven't heard of who was on the right side of the trade..

Almost the same thing that happened with fixed-price natty at the beginning of the year. Day 1 Nymex down .40 and stop outs galore until it hit 2.75. The market was so long and I heard rumors of everyone losing money but never got wind of who was on the right side of that trader either.

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Aug 20, 2017

honestly I know it sounds dumb, but all I can think of is producer hedging?

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Aug 20, 2017

I've heard of guys getting bounced for being down a buck, so thats crazy that guy is still in his seat

Aug 22, 2017

Citadel got burnt this time last year on CBOT Soybeans to the tune of 100mm too. Ouch.

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Aug 22, 2017

Citadel reportedly lost $200MM in Q1 '17. The natgas hedge fund Velite apparently vaporized 45% of its portfolio value on bad gas bets

Aug 22, 2017

I don't have access to the article, but is it suggesting that the 100 mm loss was all east basis related, or east basis length was just a part of that number?

Agree with comments that a lot of fundamentally "right" trades went wrong in 2q between the east and NYMEX. "Back end" is an interesting distinction on dom- is that winter 17/18? Cal 20+? Bal summer had fundamental issues of its own - production growth and TCO maintenance being the big two there IMO, but if the length was in the winter then this Rover choppiness may be noise. I don't know how reliable it is, but the CFTC data suggests the market is still quite long ICE dominion. Cal 20 and beyond have been relatively well bid despite everything going on further up front - I have my theories...

This is a small poker table - did the big stacks leave for the time being, or just temporarily short stacked?

Aug 31, 2017
new_guru:

I don't have access to the article, but is it suggesting that the 100 mm loss was all east basis related, or east basis length was just a part of that number?

Agree with comments that a lot of fundamentally "right" trades went wrong in 2q between the east and NYMEX. "Back end" is an interesting distinction on dom- is that winter 17/18? Cal 20+? Bal summer had fundamental issues of its own - production growth and TCO maintenance being the big two there IMO, but if the length was in the winter then this Rover choppiness may be noise. I don't know how reliable it is, but the CFTC data suggests the market is still quite long ICE dominion. Cal 20 and beyond have been relatively well bid despite everything going on further up front - I have my theories...

This is a small poker table - did the big stacks leave for the time being, or just temporarily short stacked?

In and out, and stack ahead of time for a short-term period.

Problem is how many open positions they carry. I back most of my positions in. I rarely keep stuff open, it's not against my risk policy, but I feel it's more conservative. I won't carry a position of 6 figure dekatherms open. I just won't. I'll leave basis open as physical position changes, but nothing huge.

Citadel, for example, buys without any backing in. They'll pick up capacity on some pipes for the weekend, hoping to sell to some sucker. Works 3 or 4 times, loses 6 or 7 times. If the 3 times they are winning beats the losses of the 6 or 7 times-- sure, great. But I know in some areas it's just not. Too damn competitive. And if I get some sense they are going to be in competition with me, I'd beat their offer.

Aug 20, 2017

Look at all the REX/NWP/ and i wanna say Kern they have been picking up. Just bidding on discounted pipe

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Aug 22, 2017

On the other side of this trade, the power producer Dynegy hedged itself like a mofo when M-3 was trading $0.80, and are absolutely crushing all the nuclear/old coal up in those regions.

Aug 20, 2017

its funny all the gas guys got burned and the power guys made out like bandits. Some of the few I know that called BS on nymex earlier this year

Aug 23, 2017

Do you guys think it was Robert Du Val at GS Nat Gas?

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Aug 31, 2017

CCI got fucked up at AECO too. I haven't heard Citadel or GS dropping their folks, though. Citadel out West just did something uber aggressive too. We'll see if it works out.

Aug 31, 2017

Citadel acquiring more pipe space out west?

Aug 31, 2017
Tandem21:

Citadel acquiring more pipe space out west?

They're becoming more aggressive on short term transport, from what I've seen. but somebodies sucking it out of them cause they don't renew it after it expires.

A true shit show over there.

Not sure if they are getting any long-term capacity, just know they are aggressive bidders on RFP fronts.

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Sep 2, 2017

Not indicative, but I do know of someone at a physical shop who lost a $1B one year and kept his seat.

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Best Response
Sep 8, 2017

There was a bunch of producer hedging they were trying to cover, and they were pretty loudly talking this view up to the market. Dom basis hadn't been that strong in over 2 years, the market was on track for a supply deficit, and all the new demand that everyone had been praying for was starting to show signs of arriving. BUT more so this was a Rover bet. ETC had a pretty long history of delivering pipe on time, but the logistics of such a big pipe as well as the regulatory issues (turnover at FERC, etc.) really shot this trade in the face. If rover would have come in they still would have had a loss but I doubt it would have been as large.

I think their other main issue was betting that producers had actually learned their lesson and they wouldn't all jump back into producing into a glut of supply. One day the traders in the market are going to learn that producer's produce, they don't trade, and they are making widgets. The majority of their thinking is more widgets means more money especially in the NE where the economics are strong for the core producers.

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Sep 8, 2017

GS Co Head of Commodities announced he is retiring today. Not sure if it had anything to do with the Loss.

Oct 18, 2017

Yes it was obviously him. He is a dumb slut!

Aug 20, 2017

The head of power trading, who was a BSD in PJM zonals left recently as well. I can tell you no one saw that coming, as there were only 2 guys going head-to-head in east power basis and he was one of them.

This is major news, especially on the back of EDF letting go 25 traders/FO staff in Houston..which is MASSIVE!

Hear me out...Spec trading in energy is dead. No doubt about it and I would love to hear a counterargument

Aug 31, 2017
MeatHead:

The head of power trading, who was a BSD in PJM zonals left recently as well. I can tell you no one saw that coming, as there were only 2 guys going head-to-head in east power basis and he was one of them.

This is major news, especially on the back of EDF letting go 25 traders/FO staff in Houston..which is MASSIVE!

Hear me out...Spec trading in energy is dead. No doubt about it and I would love to hear a counterargument

This hit home for me. I was trying to complete a trade with someone over there, they got summoned to a meeting. Waited for them to come back, never did. Learned they were let go.

EDF doing this massive cut is a huge shift. I know their mgmt was shuffling, they froze some hiring periods, etc. But the new strategy is in---cut the fat and any fluff.

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