LONDON - Carbon emissions prices could become the driver for other energy commodities within the next 5-10 years, said Jean-Francois Steels, head of Mercuria Energy Group's newly expanded emissions trading team.
At the moment, the carbon price follows things like crude oil, German power, coal and natural gas, Steels told Reuters late on Monday.
In 5-10 years it's going to be the other way around, with carbon driving and influencing the other energy commodities.
Prices for European Union carbon permits, the current global benchmark for emissions markets, are correlated to natural gas and coal, because as coal prices rise, many utilities switch to less-carbon intensive gas, and therefore require fewer permits.
German power prices also influence carbon because the country relies on coal for a majority of its power generation.
EU permit prices, trading in a narrow range of between 13 and 15 euros in the past few months, are well below all-time highs of around 30 euros hit last summer when crude oil prices reached nearly $150 a barrel.
Steels said since the economic downturn dented energy prices worldwide, carbon was tied more to outside factors.
It can be a bit frustrating because carbon sometimes lacks its own fundamentals and might not be mature enough to find its own direction, but this will change, Steels said.
Carbon will become a major element in the future pricing of energy, so if you can understand the price of carbon in different geographic regions, you should be able to better forecast the demand for energy in those regions.
TEAM Formerly with Suez Energy, Steels in 2007 joined Mercuria, one of the world's top five independent oil traders, to head their emissions trading operations.
He was a one-man-show until earlier this year when the Geneva-based firm decided to aggressively expand their emissions trading team.
We decided to add carbon to our product portfolio and expand our team as both a strategic and commercial decision. It's important for our customers, who trade oil, gas, power and coal, because they must now take carbon prices into account in their investment decisions, Steels said.
Even U.S. oil refiners are now starting ask how carbon prices will affect their margins and in turn their international competitiveness.
After a flurry of hiring, Mercuria's emissions team stands at nine, and Steels said he is happy with its current size and does not foresee further hiring this year.
Among the additions to desk was Andrei Marcu, former head of French emissions exchange BlueNext and president of an emissions trading lobby group.
Daniel Mulder, RBS Sempra's former head of emissions, and Franck Bernard, formerly a carbon origination manager at Abu Dhabi's Masdar, have also joined the company.
Mercuria's emissions team now has six staff based in Geneva and three in China, and trades carbon for around 100 clients, Steels said.
(Editing by William Hardy)