July 2019 – Enuit interviewed on CTRM Radio
We are proud to announce that last week we were invited to share our thoughts in CTRM radio, hosted by ComTech Advisory.
In this edition of ComTech’s podcast, they talked with several experts in the area of trading and risk management solutions that can address the needs of companies operating in the global LNG markets.
Our president, David Meyers was interviewed by Patrick Reames, founder and MD of ComTech Advisory. An excerpt from the interview can be found below – for the full podcast visit: https://soundcloud.com/ctrmradio/ctrmradio10
Introduction from Patrick Reames:
“I’m Patrick Reames and in today’s edition of our podcast, we’ll be talking with several experts in the area of trading and risk management solutions that can address the needs of companies operating in the global LNG markets. As the LNG market continues its rapid expansion with the development of new liquefaction facilities around the globe and a growing reliance on LNG as a primary fuel source particularly in the Asia-Pacific region, the demand for trading and risk management software to serve the needs of new market players has increased. Though many of the off the shelf ETRM products can provide much of the necessary functionality address the needs of producers consumers or traders of LNG, there are a number of unique I.T. challenges and/or solution gaps that will need to be addressed prior to these new market entrants beginning operations (in the LNG markets).”
Interview with Mr David Meyers:
Patrick Reames: “We are joined by Mr David Meyers president and co-founder of Enuit, a Houston based ETRM vendor with a global reach. Enuit’s been very successful at selling into the ETRM producer, trader, merchant and even in the consumer space for LNG. I think he brings some pretty good insights. David in terms of what your experience at Enuit has shown you what are some of the unique challenges that LNG producers, traders, merchants, consumers face when implementing or buying an ETRM system”.
David Meyers: “Thank you, Patrick. The LNG market is similar in many respects to other commodities that are traded. It’s a newer market and I think first of all the biggest challenge is tuning up any of the ETRM or CTRM products to the specific unique attributes or nuances which are specific to the LNG market. Each commodity market has its own personality per se and has its own unique aspects, and I think the LNG market, in general, has unique aspects”.
“There is the production side, that’s one element, and then the general cargo-style business, the marketers or even the consumers that actually purchase LNG for their own needs generally, like a country, for example, Japan or China”.
“One of the biggest things perhaps for the marketing side is the pricing mechanism. There’s no exchange or benchmark index per se for LNG. You have LNG being produced in Australia you have LNG being produced now in the United States, and I suppose even in the Middle East they are also now liquefying what they used to consider to be an annoyance, natural gas, and they’re making some money off of it”.
“As for the pricing mechanism, because there is no benchmark or exchange-traded value, it’s hard to know what the value is. In the United States, we have an advantage that we do have an active natural gas market with a very established energy hub exchange which is not a bad source of information for natural gas pricing in general, but it’s still not LNG. LNG is a different product obviously than natural gas. There’s a bunch of different ways of pricing LNG and they’re very complicated models referencing Brent crude and Henry Hub etc. There are also other indexes, for instance, freight costs and so forth to begin to establish some basis for a rational price that can be negotiated”.
“There are some charts that I have of curve hierarchies, you might call them, which is a way of establishing LNG prices. They are very complicated and very complex. So if you have a system that needs to implement an LNG marketing system or a system that can price LNG deals then you better have a system that can handle the complexities of the unique and complicated LNG deal formulas, that can deconstruct them, that can represent the risks inherent within the deal formulas into its benchmark components, for instance, Brent or Henry Hub and that can price them out eventually for a settlement. That in a nutshell the most complicated aspect of the LNG market according to my understanding today.
The only other aspect which is more logistical in nature, managing, for instance, the heel which is what’s leftover that didn’t get pumped out, there the heel when you load the ship and then there’s the heel when you discharge the cargo and then whether you use LNG as a bunkering fuel”.
“These are more logistical cost-related things which does complicate the whole aspect of running an LNG buying and selling business, but it’s not different than the situations you would face for crude or a refined product cargo. So those aren’t necessarily unique to the LNG market, but complexities, that if you have a crude system you may be able to use it for an LNG product, but it doesn’t necessarily translate one hundred percent”.
“That’s my take on the complexities of the LNG business as it relates to I.T. or having software to help manage your companies operation”.
“On the production side, it’s very similar to most of the traditional natural gas business that is already happening for the last 25/30 years here in the United States relating to loading cargoes or liquefaction processes. Essentially the net you buy and procure natural gas, you transport it, you put it in storage, be that self-owned storage or something similar, that is close enough to your liquefaction facilities so it can be readily pulled as needed”.
“Basically you have all the traditional aspects of a storage or a natural gas system that you would expect any software vendors or internally built software to handle and manage well”.
“From a modelling perspective, you could look at your liquefaction processes as another pipeline which has a higher fuel cost because you might use natural gas as the fuel in the liquefaction process. But there’s also a cost built-in if you use electric power for the liquefaction process, and so there’s other charges that are also part of the production of LNG which makes it a little bit unique”.
“Probably the most unique aspect of the LNG production is the operation of the facility itself. Many of these liquefaction facilities are multi trained and the capacity through the liquefaction facility is contracted to various local investors in the liquefaction facility. Because of that, you have to manage on whose account you’re liquefied natural gas and storing it subsequently after liquefaction processes in tanks that may be shared and intermingled with other investor LNG. So the management of the trains as well as the ownership of each of the molecules within the storage facility becomes a little bit complicated”.
“There are ways of dealing with this obviously from a modelling perspective which I suppose many software solutions could manage”.
“The only other aspect is having multiple commodities, for example, you have natural gas and you have LNG and you have electric power, all of these three things are intermingled in the same system. And if you don’t have an ETRM system that can handle the multi-commodity aspect, each commodity in and of itself, plus the commodity conversion elements of a system then it can become challenging”.
“By and large those are my thoughts as regards the LNG market in general as well as the LNG production side of the business”.