Trading Jenga: Trafigura and LNG

The 2015 spot market for LNG is increasing. Several proposed LNG facilities were shelved as oil prices fell during the past year. This trend will continue as oil and gas prices trend in a range too low to support key long-term contracts for the LNG plants. Spot market volumes explode when the trading range is narrow or prices stay low for an extended period of time. One star rising appears to be Trafigura. Swiss-based Trafigura became a leading player in LNG after signing an amazing deal with Mexico. They traded 1.7 mln tonnes of LNG in 2014.

Dutch owned Trafigura invests in ports, terminals, warehouses, storage, ships, and logistic systems to improve its risk profile and enhance their ability to deliver LNG. Swiss masters dancing on knives. There is no blood. The management of the company contributes great leadership with a strong and cohesive team to master physical asset management. This is a highly complex trading operation managed with grace. Trafigura exploits pockets of market volatility and opportunity with asset purchases to create trading opportunities.

Trafigura executed a contract with shipping company Golar LNG to lease six vessels on a single voyage basis. Will Trafigura take advantage of the fragile Greek financial markets and exploit another shipping opportunity with Greek shipping tycoons for a longer term? Trafigura can access LNG storage at India’s Kochi terminal and Singapore’s Jurong Island import terminal. This allows them to swing volumes in and out for storage for added flexibility and security.

Trafigura has a golden reputation for the best traders and strong executive leadership. This company is very good at systems and software to track real costs and underlying hidden expenses associated with market shifts. They are seldom caught off guard. Trafigura uses transparent and published spot LNG pricing to forecast pricing and estimate swap market pricing for LNG spot.

Traders can use third party LNG infrastructure off-take contracts and shipping agreements to create trading opportunities. LNG storage is another way to book large profits, but it carries a higher level of risk. LNG call options are one way to lower the cost of LNG supplies without paying for storage.

Trafigura, Vitol, Shell, Noble, and BP are key trading partners and spot market participants for oil markets and LNG. Oil traders may act as brokers for producers and commercial and industrial end users. There is rising global supply and growing competition for spot market LNG. Egypt, Mexico, Japan, Pakistan, and Jordan are importers of LNG.

A recent example of Trafigura’s integrated asset planning includes its Singapore LNG Corporation terminal on Jurong Island under operation since May 7, 2013. This business structure includes LNG terminals, storage, regasification, send-out services, vessel cool-down, storage & reload services. Trafigura also invested $800 million in the Australia for 250 petrol stations, two oil import terminals, and five fuel depots through Puma Energy.

Software systems, credit facilities, logistics, infrastructure, and storage enhance trading for Trafigura trading partners and customers. Is Trafigura stepping into the limelight with Goldman Sachs as a permanent leader in the trading ring?

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