Texas Hedge Fund Reaps 155% Gain on U.S. Electricity, Gas Bets

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(Bloomberg) — A small Austin, Texas-based hedge fund has gained about 155% this year trading natural gas and electricity on a long-term outlook that the energy transition will create volatility and periodic supply crunches.

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E360 Power LLC, which manages about about $200 million in assets, climbed almost 62% last month, and growth for the first nine months of this year was nearly triple what it was for all of 2020, the fund said in a letter to investors.

The gains were driven by U.S. power and volatility bets made in futures contracts beyond this winter, many of them with delivery dates as far out as 2023 to 2025, according to co-founder James Shrewsbury. These longer-dated contracts, which are often less liquid and therefore less attractive to some traders, have rallied after back-to-back extreme weather and fuel-supply concerns in Asia, Europe and the U.S. during the past year.

Gas and electricity prices are already elevated for the coming winter across much of the U.S., after languishing for years amid record shale gas production. A combination of stagnant gas supply growth, rising fossil-fuel demand and electric grids increasingly reliant on intermittent renewables is driving prices to unprecedented levels overseas and to multiyear highs in the U.S.

“The real story is long-dated energy has become a problem, meaning we have been lulled to sleep,” Shrewsbury said in a phone interview. Manufactures and other industrial users of gas had no incentive to secure supplies under 10- or 20-year contracts because of a very long bear market and reversing that will spur prices to rally even more, he said. “Energy security is no longer guaranteed.”

E360 Power was co-founded in 2009 by Shrewsbury and Juan Penelas, both alums of Griffon Energy Capital LLC and trading operations at utility giant American Electric Power. The firm trades U.S. electricity, primarily on the Eastern grids, as well as U.S. and European gas and carbon credits in both regions.

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