Cold weather in Asia has resulted in increased LNG demand and more shipments to the area, leading to less availability in Europe and elsewhere. Demand on European gas stores has been high, although not unusually so, meaning that there is less flexibility in the market right now.
This lack of flexibility has led to high spot prices and volatility across regions, and although spot demand is high in Europe, spot liquidity is currently concentrated in Asia. And given that vessels delivering to Asia in February may not be ready to pick up cargo in early March, European stocks may remain low into the warmer weather. With fewer options available, LNG producers, traders and buyers need access to more information than ever to ensure they are making the right decisions.
And whilst this particular squeeze primarily affects the energy markets, its lessons are relevant for all commodity traders and buyers. Position visibility is always important, but when flexibility is limited, the better real-time position visibility you have, the more flexibility you can create.
How position visibility helps
There are a wide range of options for each LNG contract that can cumulatively have a significant impact on deal profitability. Without even mentioning external factors such as pricing indices, there are many sourcing and transportation options for each contract; vessel type, shipping route and gasification terminal can all play an important role for both sellers and buyers of LNG.
When there is less flexibility in the wider market, it is even more important to have an up-to-date understanding of these factors so that you can create your own optionality and generate better opportunities for profitability without compromising your operations.
With the regional imbalances in supplies, it is important to know the tank capacity and utilisation for each of your locations as well as the dates of any inbound or outbound shipments before negotiating new contracts involving the location. This allows you to ensure consistent operations and client service whilst being in a position to quickly capitalise on regional pricing fluctuations by knowing exactly what you have to offer.
Unlike their older CTRM counterparts, modern commodity management systems can offer this position visibility in real-time, updating throughout the day. With Gen10’s CommOS, tank utilisation is automatically calculated for each location as operations teams manage their shipments so decisions can be made faster, with certainty and without tracking down disparate pieces of information to confirm stock locations.
And it is not only tanks that need to be monitored; the large distances involved mean that it is important to keep track of ocean-going freight. As well as the ability to integrate with GPS vessel tracking to show exactly where your shipments are, CommOS can automatically create calendar deadlines for tasks based on vessel ETAs, and update them if vessels are delayed.
This visibility reduces much of the administrative burden associated with managing multiple shipments and reduces the risk of key activities being forgotten and causing further problems, such as by notifying teams to send an Ocean Bill of Lading 10 days before the vessel’s estimated date of arrival in port.
As European and Asian markets become increasing interconnected with strong price correlation, you need both flexibility and accurate up-to-date information to be able to take advantage of any divergent price moves as they arise. As well as prices and stock availability, it’s important to have access to information on future shipments too; to assess, for example, whether a ship would be better making two European deliveries in place of one Asian shipment.
Position visibility is also important when it comes to managing order fulfilment, or for buyers, maintaining the right inflows. With technology that shows all your upcoming contracts and any shipments that do not yet have stock assigned, it is faster and easier than ever to ensure you have the capacity to meet all your obligations and can create the best opportunities from each transaction. For traders and procurement teams, this may mean negotiating more relevant premiums and discounts based on locations, and for operations teams, developing creative transportation strategies that generate the greatest returns from each shipment.
And position visibility is also vital for hedging. With volatile markets and growing interest in long-term oil-linked and hybrid spot pricing contracts, gaps in hedging strategies can create significant risks for the business. Commodity management technology can again provide a complete overview of your positions for hedging and show any unhedged positions, allowing you to catch any unintentional omissions before they can become costly mistakes.
Position visibility is essential for every business working with commodities. Technology that provides real-time visibility of the complete business throughout the day is becoming increasingly common, meaning that organisations without this visibility will struggle to create the same opportunities as their competitors in future. And as is the case in the LNG markets at present, when market conditions limit the flexibility you are used to, having a true and ever-changing view of your own positions and operations allows you to create your own flexibility, delivering the best service for clients and the best outcomes for the business.
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