* Macquarie first "Asian" bank to make commodities top 3
* Expanded in U.S. energy as others were pulling back
* Goldman Q2 commodity results its weakest as a public firm
LONDON, Sept 21 (Reuters) - Australia's Macquarie Group Ltd has overtaken Goldman Sachs to break into the top three banks for commodities business, having significantly expanded its U.S. energy operations in recent years while rivals cut back.
The rise of Macquarie marks a huge shake-up in commodity banking, typically dominated by elite U.S. and European institutions until tough regulations forced withdrawals after the global financial crisis.
Macquarie, not burdened by the stiff regulations as an Australian bank, ranked in the top three in terms of revenue from commodities trading and related businesses for the first six months of the year, industry sources said.
This is the first time a bank outside the United States or Europe has broken into the top tier in commodities, or any other capital market sector.
Macquarie ranked behind Morgan Stanley and Citigroup for the first six months of 2017, but ahead of JP Morgan and Goldman, with the top three averaging $250-$300 million each in commodities revenues, down sharply from the first half of 2016, one source said.
Macquarie declined to comment ahead of its half-year results on Sept. 30.
The bank reported net trading income in commodities of A$1.16 billion ($921 million) for the financial year to the end of March this year, marking a 66 percent increase in four years.
Comparable financial numbers were not available for rivals because most banks do not make public their revenue from commodities, incorporating the sector into a broader category of fixed income, currencies and commodities (FICC).
Analysts estimate Goldman usually averages around $500 million in commodities revenues for the half year, but that this had slid to $150 million in the first six months of 2017.
"As people have dropped by the wayside, such as Barclays, Deutsche Bank and so on, Macquarie have been able to mop up some of that business," said Seb Walker, partner at banking consultancy Tricumen.
Macquarie is the first Asian bank to make the top three in any capital markets product.
Deutsche Bank and Barclays, hit with tough capital requirements during a downturn in commodities, sharply pulled back from the sector in 2013-14, while in the United States the Dodd-Frank law banned proprietary trading by banks, prompting them to curb physical commodity business.
MACQUARIE EXPANDS IN U.S. ENERGY
"We should expect more growth from Macquarie," Walker said, noting the bank agreed in June to acquire Cargill's North American power and gas business.
That deal came only months after Macquarie agreed to buy Cargill's global petroleum business and marked the latest expansion by the bank of its energy franchise.
While other banks cut back, Macquarie has boosted its operations to become the largest non-producer marketer of physical gas in North America.
Trader Nick O'Kane built up the bank's U.S. energy business, starting off with the takeover of Los Angeles-based Cook Inlet Energy Supply in 2005.
Cook's owner had 1/16th Inupiat Eskimo heritage and got guaranteed sales to California utilities which had to purchase 5 percent of natural gas from minorities.
In the aftermath of the global financial crisis in 2009, Macquarie acquired Constellation Energys downstream natural gas trading platform, a good example of the bank's long-term commodity strategy, said a former Macquarie executive.
"That investment was at the bottom of a 10-year view from someone who plans to be there for another 10 years where as for some of the European banks its a year-to-year proposition."
A banking source in Europe said Macquarie was also canny in taking advantage of its position as a non-U.S. bank.
"They use a different funding model to the U.S. banks constrained by regulations, using short-term paper so they can price more aggressively," he said.
A wave of banks from Australia, Canada and China are grabbing market share in commodities after many big U.S. and European rivals withdrew or trimmed back, said Amrit Shahani, research director at financial industry analytics firm Coalition.
So-called "challenger" banks have boosted their market share in commodities to 28 percent last year from 19 percent in 2014, taking business away from the top 12 global investment banks, he added, declining to discuss individual banks.
The Coalition index of top investment banks does not include many of the banks such as Macquarie that are gathering steam in the commodities sector.
While Macquarie has been building up its commodities business, usual top dog Goldman Sachs faltered in the second quarter, reporting the weakest commodities results in its history as a public company.
Commodities trading among banks had been traditionally dominated by Goldman and Morgan Stanley, joined by JP Morgan and Citigroup and European banks during the commodities boom.
At its height, banks' commodity revenue totalled about $15 billion, but has steadily slid to just over a third of that, totalling around $5.5-$6 billion last year, Shahani said.
In the first half of 2017, commodities revenues at the 12 biggest investment banks tumbled 41 percent year-on-year to its lowest since at least 2006, Coalition said this month.
"It's been a very difficult year for the large banks. The question this year is whether the challenger banks can step into their shoes and displace them or will the global banks pop back in the second half," Shahani said.
($1 = 1.2590 Australian dollars) (Additional reporting by Paulina Duran in Sydney; Melanie Burton in Melbourne; Anjuli Davies, Dmitry Zhdannikov and Fanny Potkin in London; Editing by Veronica Brown and Mark Potter)