As the war in Ukraine continues to rage, Russia has retaliated against the European governments that have supported Ukraine with arms shipments by throttling natural gas supplies or entirely shutting down (and possibly sabotaging) pipeline flows. To address these shortfalls in supply, Europe has turned to the global LNG markets to help not only with immediate needs but also to fill storage levels as the continent moves into winter.
This increased demand for LNG has pushed natural gas prices to record levels, with key European hubs, such as TTF, trading over $100/mmbtu this year, while simultaneously driving up prices in the Asia Pac region as buyers there compete for critical supplies. These huge price increases (as much as 400% compared to similar periods last year) have drawn new players into the market, particularly marketers and utilities seeking to replace or at least reduce their dependencies on unreliable Russian supplies.
Unfortunately, many of the companies that have attempted to move into the global LNG market have discovered they lack the appropriate IT systems required to manage the purchasing, tracking, and accounting of LNG volumes. In particular, their CTRM systems are proving inadequate in being able to address the many complexities associated with the life cycle of LNG (liquefaction, shipping, off-loading, regas and distribution processes) and the unique operational and commercial processes associated with its pricing and movement.
I was recently discussing the market and related CTRM issues with Ken Han, co-founder and CEO of Enuit, a leading supplier of CTRM solutions for LNG and natural gas. As he noted, “There is no question the global LNG market is hot right now. However, for new players entering the market, almost all of which are very large companies, trading LNG will challenge their systems. Beyond the operational issues such as tracking LNG from the producer through regas and gas distribution, there are a number of commercial considerations unique to the market.” For example, he noted that “LNG is a unique commodity in that the volume changes during the voyage (boil-off), the shipping route can change and even the price of the cargo can change at sea. And because of these changes, there is significant optionality within each contract that must be valued and optimized.” Given these challenges and Enuit’s growing presence in the LNG space, he noted they are seeing a large uptick in inbound interest in their Entrade system, including several from customers of other vendor solutions.
Though the long-term implications of current events in Europe aren’t fully established, certainly in the mid-term Europe will continue to look to the global LNG markets to address shortfalls and reduce their reliance on Russian gas. For those companies that have recently made the decision to move into the LNG markets, most are discovering their current CTRM systems lack much of the specific capabilities required to manage the complex LNG/natural gas distribution supply chain and unique commercial considerations associated with the market. For the CTRM vendors that have proven solutions for managing those complexities, the next year or so should prove to be lucrative.