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29 March 2024

Flagship Imex contract to be for liquefied natural gas

Published
By Karen Hart

 

  
(SUPPLIED)   
 

Qatar’s initiative – the International Mercantile Exchange, or Imex – is still deliberating on its first product. It is likely to offer refined-products contracts and, most significantly, the LNG contract, to meet an emerging demand in a rapidly expanding industry.

This will be the second energy exchange in the Middle East since the launch of the Dubai Mercantile Exchange (DME) last year by the UAE. The DME has an Oman crude oil contract as its leading product.

“Imex would complement and not compete with other existing trading platforms,” Imex CEO Steve McMillan told Emirates Business. “Established exchanges tend to focus on high turnover/low commission mature products. However, our expertise is on growing new marketplaces and as we develop these markets we would expect liquidity to remain within our platform.

“We also believe these markets will develop in partnership with those companies working within the GCC and not on exchanges in different continents,” he said.

Imex was to open by the end of last year, with Imex Holdings announcing early on that the trading platform would go live and obtain the Qatar Financial Centre Regulatory Authority (QFCRA) approval by the end of 2007. However, the “complexity” of such an “ambitious” project has delayed its much-awaited launch.

McMillan (pictured above) said: “It is an ambitious and complex task to develop new markets as any contract, settlement and fulfilment mechanism for these markets should meet the needs and expectations of the industry.

“We are working towards developing these, but before they are in place and, more importantly, agreed by market participants, there is no point in launching a contract.”

In the meantime, Imex is putting in place the technology and the operational capabilities required to run trading operations.

The moment Imex goes online, the Middle East can expect another first in the world.

While DME has launched the world’s first sour crude futures, the planned flagship contract for Imex will be a liquefied natural gas (LNG) contract, which, according to energy trading company Hetco, will be the first of its kind in the energy exchange world.

LNG – a natural gas that has been refrigerated and converted to liquid form for ease of storage and transport – is shipped around the world in specially constructed seagoing vessels. With most countries moving from crude oil to gas as a preferred source of energy – thanks to tightening environmental standards – LNG has become a popular fuel worldwide. Today, almost all LNG are earmarked to long-term customers even before they are produced.

 

LNG CONTRACT


The agreements for LNG trade are generally long-term portfolios (approximately 10 years to 25 years) that are relatively inflexible both in price and volume. The current spot market for LNG is therefore seen as a junior partner with a market that is 90 per cent dominated by long-term contracts.

But while there are only 10 per cent spot trades, the growing trend of LNG producers to grow the amount of LNG sold on a spot basis indicates that the marketplace is changing. And with this scenario, Imex is banking on a good new trading business.

“Gas is a global energy resource that needs to be priced in its own right so that producers, suppliers and buyers can make optimum decisions based on real product information,” McMillan said.

Amid massive speculation that LNG will be its main product portfolio, Imex, until now, has neither confirmed nor denied that it will be one of their products.

“LNG is only one of the ‘new’ hydrocarbon markets that we are focused on,” said McMillan. “But I can say that given the global nature of LNG, the  global  energy demand profile, the  growing disconnect between oil and gas prices, LNG’s green credentials and the growth in regasification and shipping infrastructure means that at some point a marketplace in LNG will exist.” The move to launch LNG contracts are but logical, say analysts, as Qatar moves to becoming the LNG capital of the world by the turn of the decade. Qatar plans to export 77 million tonnes a year of LNG by 2012 and also plans to have a fleet of 65 tankers for LNG transport.

 
TRANSPARENT MARKET


LNG, according to Imex Research, is only one of the new markets under study. Its study has shown that LPG, condensates, sulphur, carbon emissions, shipping, naphtha, inert gases, GTL, storage, re-gasification slots, among others will all develop into active trading markets in coming years.

“Imex seeks to develop several new and emerging hydrocarbon markets in a sense that many of the products that we are focusing on are related to one another, yet some have never seen an effective forum for physical trading,” McMillan said.

The idea of McMillan is this: first, Imex will assist in the growth of trading in the physical markets, and from there move towards a financial market using physical benchmarks as settlement points.

These traded markets will then allow market participants to better manage their portfolios through the use of dedicated contracts instead of having to price or settle through less than ideal proxy markets.

“To that end we are developing Imex now because the volatility of energy prices in recent years has created the need for these instruments,” he adds.

But how can Imex increase price transparency and pricing autonomy? According to McMillan, a number of products currently do not have a physical market forum from which price transparency arises.

A number of mature markets that are financially traded, he adds, depend on price assessment services, which are not an “optimal” solution. “I could not agree more with the principles behind the launch of the DME Oman futures contract for the reason it is not price assessment dependant or the settlement of its contracts,” he said.

McMillan adds: “Imex will not reinvent any markets, but rather will create the opportunity for some degree of physical price setting.  This will in turn create price transparency and in our view price allow users to optimise their portfolios.”

IMEXauction – a primary market auction system targeted at wholesale hydrocarbon markets – has been developed for the purpose of transparency. The auction system enables national oil companies and their production partners, to sell hydrocarbon spot cargoes through an independent, modern and online auction system.

Based on state-of-the art WEB 2.0 technology, the proprietary system is now in alpha-test and is being shown to selected industry participants to get feedback and tailor the system to individual national and international oil company requirements.

Additionally, Imex also just acquired a stake in Elysian Systems, a London-based provider of exchange technology. This acquisition provides IMEX with another state-of-the-art electronic exchange trading platform, called IMEXtrader that will underpin its electronic trading services.

“However, there will remain the need for direct negotiations or contracts between energy companies and their long-term clients,” he said. “These long-standing arrangements should not be affected by Imex. In fact, we believe they will be enhanced.”

NASCENT INDUSTRY

But just like any new initiative, Imex is expected to face mammoth challenges. Most hesitation and reluctance usually originate from national oil companies who control almost 90 per cent of oil and gas reserves.

In the case of DME, the region’s oil producers expressed reservations over the sour contract and said they will find it easier to back new product contracts as price benchmarks than crude future contracts.

“For state oil companies it would probably be more palatable to them to use product prices to start with, before crude. Somehow product is less political and sensitive,” said Adel Al Moayyed, general manager marketing at Bahrain Petroleum Company.

Should Imex launch LNG as a product portfolio, one of the problems could be the availability of LNG itself. The spot trading with only 10 per cent of the gas market is relatively small. Another issue is transportation.

Companies today are very strict in chartering LNG ships constricting more spot trade.

As for Imex, exploring new hydrocarbon markets is a bullish market. “We are very encouraged by the feedback [from national oil companies, international oil companies and end-users]. We are receiving so far and we are in continuous contact with all sides of the industry. Nobody disagrees that the process towards trading in these products is in motion.” he said.

“While there are sceptics, the large majority of comments have been supportive with many parties seeking active involvement,” McMillan said.

 

 

New headquarters

 

Imex, initially located at the Qatar Financial Centre in Doha, will be moving in 2009 to the Energy City in Qatar. It will form the cornerstone of Energy City, a new $2.6 billion (Dh9.5bn) energy business district at Lusail, which is being developed in Doha, due for completion by 2012. Imex plans to begin operations following approval by the financial regulator, the Financial Centre Regulatory Authority.

 

 

Steve McMillan

CEO


Imex CEO Steve McMillan has more than 20 years of experience of financial intermediation. Prior to Imex, McMillan was Global COO and CEO Europe at GFI Group Inc, one of the largest global intermediaries active in all major asset classes: energy and commodities, equities, financial products and fixed income securities.

McMillan started his career at Garban Group, now part of ICAP, the world’s largest inter-dealer broker, where he sat on the main board of Garban as CEO Europe. A member of the Chartered Institute of Management Accountants since 1986, McMillan has a BA (Hons) in accountancy from the London School of Business Studies.