LNG Trading Meets EBay as Startup Launches Online Auctionby
Former Shell lawyer hoping GLX will add transparency to trade
Spot and short-term deals growing as portion of LNG market
A group of liquefied natural gas industry executives is launching a digital platform that will allow LNG traders to buy and sell spot cargoes via online auctions.
The Global LNG Exchange, or GLX, will begin testing its platform in October and plans to handle live deals starting in the first quarter, Chief Executive Officer Damien Criddle said in a phone interview. Criddle hopes the site can replace the current system of buy and sell tenders that are issued and bid on through e-mails, instant messages and phone calls, which dominate the current spot and short-term market.
The launch comes as spot LNG trading expands and new liquefaction plants increase global supplies and spur some traditional buyers to resell cargoes they don’t need. Spot and short-term deals accounted for 28 percent of the global LNG trade last year, according to the International Group of LNG Importers, up from 16 percent a decade prior. Spot LNG prices in Singapore fell 1.3 percent on Thursday to $5.187 per million British thermal units.
“Right now you have to find information on the market through rumors and various angles,” said Criddle, a former Royal Dutch Shell Plc attorney. “When you see supply and demand on a screen, that will lead to price discovery, which will lead to a more transparent market, which will lead to more liquidity.”
The platform will allow members to post offers to sell or requests to buy cargoes, and then let other participants anonymously bid on proposals. When the auction is finished, the winning bidder and the auction poster will be connected so long as the bid meets a reserve price, and the two parties will be able to close the deal.
“This is exactly the right time to be doing this kind of innovation,” said Jonathan Stern, chairman of the gas research program at the Oxford Institute for Energy Studies, who has been briefed by GLX executives. “We still have not seen the big wave of new LNG projects arrive, and when we do we’re going to see a lot of cargoes looking for homes.”
GLX is in discussions with several LNG buyers and sellers to build a roster of members for the launch, although it hasn’t announced any participants yet, Criddle said. The exchange plans to charge an annual membership fee as well as a transaction fee for closed deals, Criddle said. The company is betting that the benefits of the platform, such as faster execution and the possibility of better prices, will make it worthwhile for market participants.
“Getting the right price, in our view, is one of the key value drivers for the platform,” he said.
Criddle said GLX’s management team includes former Woodside Petroleum Ltd. board member Rob Cole and former BP Plc executive Phil Home. The platform has been funded so far by the management and private investors from Australia. The company plans to operate out of Singapore, while its parent will remain headquartered in Perth.
If successful, the data trove of completed trades could lead to price indexing for different locations around the world, Criddle said. Those indexes could then be used as the basis for trading of futures contracts and derivatives, possibly through other exchanges, he said. Other platforms, including Singapore Exchange Ltd., offer LNG futures contracts based on price assessments or pricing-agency reports, but none have any open interest at the moment.