Platts works to be sure the price is right for energy
Company’s president wants to measure how value of U.S. crude competes with different kinds around the world
Martin Fraenkel is president of S& P Global Platts, the leading independent provider of benchmark prices for crude oil, refined products, natural gas and a variety of other commodities. Platts tracks transactions at ports and other locations and publishes price benchmarks used in energy and commodities trading around the world. Platts’ more recent efforts include developing international benchmark prices for U.S. shale and liquefied natural gas, and using blockchain technology to enhance its data collection.
Fraenkel, who became Platts president in 2016 and helped advance its growth in analytics capabilities, was recently in Houston and spoke with the Chronicle in the company’s local offices. Edited excerpts follow:
Q: What brings you to Houston?
A: The United States is becoming a significant exporter of crude oil and we think that will continue to be a trend. It’s going to be important to grow price discovery around U.S. crude oil. There’s a debate on how you value crude oil coming out of the U.S. and the different pricing for different grades of crude. The type of crude coming out of the shale regions is different from the traditional sour
crudes and we’re hoping to increase the transparency and develop pricing benchmarks
Q: Why is that important?
A: It’s important to be able to value how U.S. crude competes with different crudes around the world. We’re developing a whole suite of price assessments.
Q: What’s the impact been on the markets?
A: The speed of change has been greater than people expected. India just imported its first VLCC (very large crude carrier) of U.S. crude. They were pretty explicit why they had done it: to show people in the Middle East that they could. The diversification of energy supply and the role the United States is increasingly playing is growing.
Q: How do you provide daily pricing?
A: We assess value in the physical market – 7,000 prices per day for different regions, different commodities. Everything we do is bringing transparency to the markets. The more information you can give, the more market participants can understand what value is.
Q: Since Platts tracks physical markets, can you give us a sense of where crude oil stands, supply and demand-wise?
A: To have a view of the physical flow is advantageous. We made the call in the beginning of last year that demand was outweighing supply, stocks were being drawn down and prices were going above $60 a barrel. It proved to be correct. Our view at the moment is demand is robust and stocks have been drawn down significantly. If the OPEC-Russia agreement continues to hold, the outlook for prices is reasonably constructive.
Q: China recently said it would launch its own yuan-denominated futures contract for crude oil. What do see as the impact?
A: It’s another important step forward for the market. It will bring more liquidity and help grow the marketplace further.
Q: Many analysts say that for LNG to become a global alternative to oil, it needs to develop transparent markets similar to crude. What role is Platts playing in that?
A: The way we bring transparency to the LNG market is principally through the JKM – the Japan-Korea Marker which we have been assessing since 2009. The JKM is acknowledged as the benchmark, it has been accepted as the leading assessment price for Asia. We’ve launched other LNG price assessments, including one here on the Gulf Coast. We’re building out this suite of price assessments around the world to increase transparency of LNG markets.
Q: Do you think U.S. LNG will become more competitive in Europe?
A: If you look at just prices, it’s hard for U.S. LNG to compete with pipelines from Russia into Central and Western Europe. It’s probably going to be tough. But if you look at the geopolitical side, there are opportunities. Lithuania built an LNG import terminal, so that’s probably telling you something.
Q: How close is the LNG market to developing into a truly liquid market?
A: My sense is that it’s close to an inflection point. The sources of LNG are growing, not only from the U.S., but from Qatar and Australia, so you have greater diversification of supply. The buyers have more purchasing power, and they’re pushing for spot pricing, rather than longterm contracts. That’s bringing in traders.
Q: What’s next for Platts?
A: We made an announcement of one of the first, if not the first, successful application of blockchain technology in energy markets. It increases the willingness of market participants to contribute data because it is an absolute guarantee of confidentiality around the individual prices. The degree of trust in Platts is high, but you always have to keep moving forward.