Slumping Energy Demand Has Bottomed, Fund Manager Melis Says

Date: Friday, September 25, 2009
Author: Lars Paulsson and Alexander Kwiatkowski, Bloomberg

The decline in energy demand and drop in German electricity prices may have ended, according to the chief executive officer of hedge-fund manager Energy Capital Management BV.

“The forward prices are at lows, the spot prices are at lows,” CEO Marcel Melis said yesterday at an energy markets and derivatives conference in London. “One thing is for sure -- energy consumption will not decrease anymore.”

The German 2010 power contract fell yesterday to its lowest in more than six months after emission permits slid. The European benchmark has dropped 49 percent from a record 90.80 euros ($133) a megawatt hour in July 2008 as Europe’s worst recession since World War II cut demand this year for commodities from oil to power.

About 60 percent of Energy Capital Management’s MMT Energy Fund, with more than $100 million in assets, is in German power, Europe’s biggest consumer, Melis told the conference.

Hedge funds are mostly private pools of capital whose managers participate substantially in any returns, and they aim to profit by trading in both rising and falling markets. If they believe prices will decline, they may take a so-called short position, where they sell the commodity and aim to buy it back cheaper in the future.

“I don’t believe it’s a good moment to be short anymore” in German power, Melis said.

The Paris-based International Energy Agency forecasts oil demand will pick up in 2010, while the drop in European power demand may have reached a floor, Lars Josefsson, head of the Nordic region’s biggest utility, Vattenfall AB, said in July. German power use slid 6 percent to 262 terawatt hours in the first half, according to data from utility group BDEW.

Melis, 41, worked as an energy trader at BP Plc, Statkraft SF, Reliant Energy Inc. and Delta Energy NV before starting the MMT Energy Fund in October 2006. It has returned 0.2 percent this year through August, according to data compiled by Bloomberg. The fund also trades in other European power markets, natural gas, coal and emissions.

To contact the reporter on this story: Lars Paulsson in London at lpaulsson@bloomberg.net