In­ter­na­tional News

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Asia´s boom­ing liq­ue­fied nat­u­ral gas (LNG) mar­ket has seen ex­changes and com­mod­ity price agen­cies vie to be­come the re­gion´s lead­ing price bench­mark. That race seems over with S&P Global Platts emerg­ing the win­ner, over ri­vals in­clud­ing other price re­port­ing agen­cies and ex­changes.

With over 70 per­cent of global LNG con­sumed in Asia, and growth con­cen­trated in this re­gion, it adds a po­ten­tially lu­cra­tive busi­ness to the company´s al­ready prof­itable op­er­a­tions pro­vid­ing oil price as­sess­ments. Platts says LNG swaps vol­umes, set­tled against its Ja­pan Korea Marker (JKM) LNG price as­sess­ments, quadru­pled in 2017 to 50,266 lots, equiv­a­lent to around 170 tankers of LNG and the growth has con­tin­ued this year.

“Jan­uary 2018 was a record month for JKM deriva­tives with over 9,500 lots cleared, equiv­a­lent to over 31 stan­dard­sized LNG car­goes,” said Dave Erns­berger, head of en­ergy pricing at S&P Global Platts. Platts pro­vides price as­sess­ments of spot LNG car­goes traded in Asia and an­a­lysts and traders es­ti­mate the vast majority of deals are priced us­ing its bench­mark.

The In­ter­con­ti­nen­tal Ex­change, which op­er­ates fi­nan­cial and com­modi­ties mar­kets, also pro­vides a swaps con­tract for LNG that uses the Platts bench­mark as the price for the un­der­ly­ing as­set. More than 9,000 LNG lots were traded in Jan­uary. Each lot is over 10,000 mil­lion Bri­tish ther­mal units (mmBtu). “The con­tract is in­creas­ingly seen as the bench­mark for LNG in Asia,” Gor­don Bennett, man­ag­ing di­rec­tor of util­ity mar­kets at ICE, said in a client note. The CME Group, which op­er­ates deriva­tives mar­kets, has a sim­i­lar ar­range­ment, although only 265 lots were traded in Jan­uary on its plat­form.

Early starter ad­van­tage - Platts started its JKM in 2009 and the tie-up with ICE seems to have won Platts the race to be the main sup­plier of the price marker in Asia, cre­at­ing critical liq­uid­ity that is cru­cial for any mar­ket to de­velop, ac­cord­ing to sev­eral se­nior traders.

Other price re­port­ing agen­cies and ex­changes, in­clud­ing Ja­pan´s Tokyo Com­mod­ity Ex­change (To­com) and the Singapore Ex­change, have vied for a slice of the price­assess­ment pie but have strug­gled for sig­nif­i­cant mar­ket share.

TO­COM de­clined to com­ment, while SGX said there was “strong in­ter­est” in its Mid­dle East and In­dia LNG deriva­tives con­tract, known as the Dubai/Kuwait/In­dia. A sud­den growth in spot trad­ing of LNG in Asia has also been for­tu­itous for Platts. Most LNG is traded via multi-year sup­ply con­tracts, but spot trad­ing took off from 2016 and made the need for a price as­sess­ment to set­tle trades more ur­gent.

China´s im­ports rose rapidly and some newer sup­pli­ers to the mar­ket were will­ing to break with tra­di­tional long-term sup­ply con­tracts and pro­vide spot car­goes in­stead.

“Flex­i­ble vol­umes from the U.S. and new sup­plies from Aus­tralia, Pa­pua New Guinea and Africa in­creased the num­ber of spot trans­ac­tions,” said U.S. LNG firm Tel­lurian in a note to clients.

“The num­ber of par­tic­i­pants in­creased to around 45, com­pared with 20-30 at the start if 2017,” Tel­lurian said. The in­creased liq­uid­ity will fuel fur­ther vol­umes of trad­ing ac­tiv­ity, peo­ple in the mar­ket say. “The abil­ity to en­ter and more im­por­tantly exit trades is critical when trad­ing in fi­nan­cial mar­kets,” said To­bias Davis, head of LNG-Asia at bro­ker­age Tul­lett Pre­bon, which also fa­cil­i­tates trade in JKM swaps. “As the JKM bench­mark has be­come more widely adopted, liq­uid­ity in the pa­per (swaps) mar­ket has grown ex­po­nen­tially,” he added. China´s surge in de­mand has iron­i­cally left the JKM, named af­ter the dom­i­nant LNG im­porters when it was launched, some­what mis­named given China´s rise.

While Ja­pan remains the world´s big­gest LNG im­porter, China over­took South Korea to be­come No. 2 buyer last year, and most an­a­lysts say it is only a mat­ter of time be­fore China sur­passes Ja­pan.

Most traders say Platts´ cur­rent suc­cess is based on the link between its price as­sess­ments and the swaps trad­ing on ICE. But if his­tory is a guide, the as­sess­ments could lose favour over time as the Asia mar­ket de­vel­ops, Saul Kavonic, prin­ci­pal an­a­lyst at en­ergy con­sul­tancy Wood Macken­zie, ar­gues.

“If and when a true Asian LNG trad­ing hub and plat­form evolves, then price dis­cov­ery will move to­ward be­ing based on an ex­change, and fu­tures will move to ex­change-based deriva­tives con­tracts, as we´ve seen in Eu­rope and North Amer­ica where ex­change prices like the U.S. Henry Hub or Britain´s Na­tional Bal­ance Point, not Platts, dom­i­nate the mar­ket,” he said.

Aus­tralian en­ergy and min­ing gi­ant BHP said a fu­ture global gas mar­ket would be “po­ten­tially har­monised around the Henry Hub” as U.S. pro­duc­ers ex­port LNG based on this bench­mark. Thom­son Reuters com­petes with S&P Global Platts in pro­vid­ing en­ergy news and mar­ket data.

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