[Premium] GLX Trading Platform Prepares for Physical LNG Trades
Australian-owned LNG trading platform GLX hopes to be able to host the first electronic trades on its platform in the coming weeks, CEO Damien Criddle told NGW on the sidelines of the CWC LNG conference in Singapore September 20.
The company has hosted practice trading days and the results and feedback have been good, he said, with the system passing the security threshholds.
This would be a landmark event, giving traders a chance to offer or bid for physical cargoes of LNG, using an automated, electronic system for delivery, the buyer and seller both being pre-qualified to trade with each other on mutually agreed terms ahead of the trade being posted. A trader can execute a deal but it needs further internal approvals, giving an audit trail.
Traders post their bids either as tenders or auctions, specifying the validity period, the heating value, quantity, region, whether FOB or DES and price as applicable; they can also select who to trade with, based on existing agreements with counterparties. Trades are executed between 16.00 and 17.00 UK or Singapore time, five days a week excluding holidays. GLX will verify trades by calling counterparties if it suspects a trade might be wrongly priced. The platform also has other features such as weather reports and other relevant news.
The outside world can only see some of the basic facts of each trade, while GLX can access all the information on all the trades. This could form the basis of a credible index to trade off, given sufficient volume of trade. However, partial cargoes are not yet on offer and nor is clearing, as the value of each cargo is too high, but this could come later, the company says.
Over 40 firms have registered to trade on the platform; others have told NGW that they are keeping a watching brief, to see how it develops. Many of the world's LNG traders have some form of representation in Singapore, whose mercantile tradition and contract law are widely accepted and whose government is keen to foster LNG market transparency without picking winners. It is however a small consumer of LNG at around 3mn mt/year, especially compared with other countries in the region - such as the world's top three LNG consumers Japan, South Korea and China.
China has surprised the community with its year-on-year import growth, often above 160% each month this year, as trucking has taken off. Japan, India and China all have the potential to develop as trading hubs, setting outright prices for their own markets which would lead to the emergence of netbacks for satellite markets, but so far their governments, like Singapore, have stopped short of compelling traders to use an exchange.
Until there is a sufficiently widely used index, financiers will be reluctant to move away from the standard indexation clauses. This may solve the immediate problem of risk management for long-term LNG contracts but it stores up problems for the future as the proxy price proves inadequate to the task of satisfying the Asian LNG buyer and seller.