The global Liquefied Natural Gas market is, and has been for a while, in transformation. It’s perhaps the fastest growing energy market in the world.
Last year Global Trade Review posted an article where they stated that we are witnessing the birth and emergence of a new commodity market.
The US energy information administration (EIA) reported in their June 2018 issue that the global LNG trade continues to grow.
In 2017 the global trade in LNG reached 38,2 billion cubic feet per day, which is the highest yearly increase (10%) since 2010 according to the International Association of Liquefied Natural Gas Importers.
Australia and the United States are among the countries with the largest increase in exports. But also Angola, Nigeria, Russia, Malaysia and Brunei experience an increase.
On the import side Japan is by far the largest buyer but China had the largest growth globally in 2017. Asian countries accounted for 74% of the total increase.
Producer forecast expect global LNG trade to grow by 50% in 2020 compared to volumes in 2014. (https://www.eia.gov/todayinenergy)
As supply is racing ahead of demand, and the world focus on lower emission energy sources, the LNG industry is expanding. There are many reasons why supply is in abundance.
For example, global trade review states that the Fukushima accident in Japan 2011 had an effect on governments around the world as they switched off nuclear plants and speculated that gas would take its place as an energy source fuel.
New supply has come on stream from the US and Australia where shale revolution saw it transform from importer to exporter.
As a result, we have seen a reduction in gas prices when the growing demand hasn’t been able to keep up with the supply.
This is pushing the producers to offer more flexibility in a market that has traditionally been quite stiff and dominated by a small number of big players. The competitive space that the independent commodity traders are taking advantage of is a result of this imbalance.
Both dry and super-cooled gas normally sell under long-term contracts that lock in producers and consumers, leaving little room for intermediaries.
Mainly because it used to be considered high risk as it needs production, liquefaction, transport, import facilities, storage and distribution in order to move from seller to buyer. And when it arrives it must compete with local gas and other sources of energy.
But an onging supply glut in the market make buyers somewhat hesitant to enter long-term commitments as they have lost out in the past when value of LNG has been dragged down because of the plunge in oil prices in 2014.
Contracts entered 20 years ago are now coming up for expiry and producers struggle to renew and replace them.
As a response to the changing market producers have been forced to adapt as buyers demand more flexibility. For example, Japanese buyers will from now on not enter new long term contracts with destination restrictions, i.e. clauses that regulate where a cargo must be delivered and limit buyers from reselling excess gas.
Also existing contracts are pushed to renegotiate.
Another driver of the growth is the increased use of floating storage and regasification units (FSRUs). This attracts new markets as this means lower upfront costs and increased mobility.
According to Oxford Energy Institute the capital cost for a FSRU is about 40-50% less than an onshore terminal, and they are often leased as the vessel is normally owned by a shipping company and can therefore be reassigned on project completion. This is a major advantage over onshore terminals which require a big land and construction cost. And with a flexible asset like FSRU it’s easier to meet seasonal demands in different parts of the world.
As an example, the same terminal that is used in Kuwait from March to November when gas demand for air conditioning is high is used as a LNG export tanker during the winter months.
The tankers has become larger and can now carry up to 6 MTPA.
In the beginning the import market was ruled by South Korea, Taiwan and Japan. Now many countries have established import terminals, and due to the FSRU’s traders see their opportunity to act as aggregators managing portfolios on short-term basis.
Commodity traders see lots of opportunities opening up in trading in order to absorb the excess LNG.
Trading houses have been doing very well in Egypt, Bangladesh, Pakistan and Angola. Especially Trafigura and Gunvor have increased their investment into LNG infrastructure. By working closer with national energy companies they have integrated themselves along the supply chain.
Trafigura have launched a master sales and purchase agreement (MSPA) in LNG trade. This is a way to standardize terms and conditions which offers transparency and better conditions for new entrants, all of which work towards boosting liquidity in the sector.
Another liquidity boost is the growing number of price indexes and derivatives markets in tune with LNG.
Head of trade finance in Trafigura explains that also the financing side is changing. They help educating the banks they work with to understand how the trade works as it differs from other commodities.
Trafigura LNG head Hadi Hallouche tells global trade review that this market itself has grown in liquidity and in number of players. Lots of companies are now trading LNG, both national companies and private equity funds. (https://www.gtreview.com/magazine/volume-16issue)
Just a few years ago the market consisted of big companies like BP, Shell and Chevron. Companies with no need for commodity trade finance. Now, with more and smaller players, more and more banks enter the LNG territory.
And there’s a rising interest from various banks to learn more and support trade for this commodity as it is considered environmentally friendly.
Even though LNG trade is growing there’s still no established exchange that provides spot prices or futures contract prices. And most contracts are still largely negotiated on a contract by contract basis with no transparency.
But the market is slowly opening up and it will be interesting to follow the expansion.
When China in 2017 decided to go from coal to gas for environmental reasons the demand was lifted outside of the usual winter peaks. Financial Times stated in the beginning of June that Chinese LNG import is up 60% compared to the same period in 2016.
This might affect the supply glut that was expected to last for another decade, we might even face a supply shortness like we have seen with other commodities in the past. For example when China increased their import of iron and copper.
This is undoubtedly an interesting market to follow in the near future.
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For kunder som jobber mot flere banker og som ikke ønsker å forholde seg til mange ulike plattformer kan vi nå tilby kommunikasjon via swift og MT798!
Innføringen av MT798 som muliggjør elektronisk kommunikasjon mellom bedrift og bank er et steg i retning mot automatisering og effektivere handel.
Før finanskrisen i 2008 så man en generell nedgang i bruken av trade finance løsninger som remburs og garantier, til fordel for transaksjoner under åpen regning og forskuddsbetaling.
Handel under bla åpen regning ble ansett som en enklere og raskere løsning med større muligheter for automatisering.
Etter krisen har fokus i større grad vært rettet mot risiko i forbindelse med at markedet oppleves mer volatilt og handel foregår mot fremvoksende markeder, hvor det ikke alltid er like enkelt å finne kredittinformasjon om motparten. Dermed øker også interessen for utvikling og automatisering av trade finance området.
Så hva er MT798?
MT798 er en konvolutt, et meldingsformat, som indikerer at meldingen sendes til/fra en kunde. Denne konvolutten inneholder en swiftmelding.
Produktene som omfattes i denne type melding er eksport/importremburs, standby remburs og garantier.
Med MT798 kan bedriften din sende søknad om åpning/endring av remburs og garanti og sende kopi av dokumenter til sjekk hos banken.
Banken kan i sin tur sende melding til bedrifter om mottak av remburs/garanti, endringer, melding av kreditering/debitering og status på forespørsler/produkter.
Hvilke kunder vil dette være aktuelt for?
Bedrifter som benytter seg av mer enn èn bank på trade finance og garantier, som har store garanti eller trade finance volumer og som trenger en god oversikt.
Det vil være aktuelt for selskaper som har eller ønsker en sentralisert treasuryfunksjon. Dette gir oversikt over motpartsrisiko og landrisiko, og det optimaliserer bruken av kredittlinjer på tvers av banker.
Bedriften bør også allerede benytte seg av SWIFT i forbindelse med betalinger, eller være i gang med å etablere egen swiftadresse.
Hvilke er fordelene?
Først av alt vil dette være en fordel både for banken og bedriften da det er en sikker kommunikasjon som vil kunne utvikles til en helautomatisert prosess.
Data kan sendes via en standard kanal og erstatte email, faks ol.
Når banken mottar en melding, for eksempel vedrørende en remburs, via swift så vil kunden bli øyeblikkelig oppdatert, noe som muliggjør en direkte integrasjon av data in i egne systemer. Det vil ikke lengre være nødvendig å forholde seg til ulike webportaler.
Andre fordeler er standardiserte avtaler med banker, standardiserte maler og ikke minst felles grensesnitt mot bankene. Ved å standardisere kommunikasjonen vil bedriften oppnå besparelser og redusere risiko for feil i forbindelse med håndteringen av remburser og garantier.
Kontakt meg gjerne for mer informasjon om MT798 :)
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Incoterms is short for International Commercial Terms, these are rules created by the International Chamber of Commerce in order to provide a worldwide import/export tool for shipments/delivery of goods.
During the 19th century international trade increased rapidly. Exporters noticed that trade customs was interpreted very differently in different national courts, which led to misunderstandings between the parties. As a result, the first set of Incoterms rules were created in 1936.
The purpose of Incoterms is to clarify buyers and sellers obligations towards each other. By choosing an incoterm rule the exporter and importer agree on:
• Who bears the risk of loss or damage to goods at any point of transportation • Who is responsible for customs formalities and duties • Who is responsible for insuring the goods • A definition of when goods “are delivered”
These are all key points for having a successful trade. The benefit with using standardized terms is that there will be no misunderstandings, no cultural barriers or language problems. Even small variations in wording can have a major impact on aspects of a business agreement. For example, a word such as “delivery” can be perceived in many different ways. For a trade to be optimal and efficient one has to be sure words and expressions mean the same for all parties.
Putting incoterms in the sales contract provides clarity for both buyer and seller, gives certainty over costs and reduces the risk of disputes and disagreements during the trade. As Incoterms have no legal status they need to be included in the sales contract to ensure validity. Using incoterms without understanding what they mean can cause unexpected results, ie unexpected costs, problems with delivery schedule, or causing disagreements that may ruin relationships with clients.
Note that incoterms are to be put in Contract of Sale, this is a contract between buyer and seller. Not to be confused with Contract of Carriage which is a contract between the shipper and the carrier. Shipper is either buyer or seller depending on the incoterms in the sales contract.
There is no right or wrong to when using a certain Incoterm. It depends on the parties and the situation. As an example, let’s say the importer is a smaller, newly started company and the exporter is a large enterprise that has been in the business for a while and already have a relationship with transport companies. Then the exporter might have the opportunity to negotiate a better deal with the carrier than the importer will be able to do. Total cost will in this case be lower than if the importer shall be responsible for transport, and vice versa. If the importer is established and has a favourable agreement with the carrier the best solution might be that they are responsible for the freight.
What is “included” in the invoice amount is a negotiation between buyer and seller.
There are many considerations to be made when deciding how to implement a trade.
Checking out our PDF with Incoterms in the link below is a good start.
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