Tim Mendelssohn, managing director and co-founder of Spark Commodities, believes the liquefied natural gas (LNG) trade needs more options to manage risk as the market continues to evolve and more players buy and sell the super-chilled fuel.
He launched Spark in early 2019 along with Charles Vallantin Dulac with the backing of commodity data and analytics firm Kpler and the European Energy Exchange. Spark offers various data and features on its platform, but its LNG freight index is at the core of its business and has gained traction in the global market as an alternative to assessments from the nearly 300-year-old Baltic Exchange.
Spark won a major listing with Intercontinental Exchange Inc. (ICE) earlier this year, which launched freight futures contracts based on Spark’s LNG freight spot price assessments.
NGI: Why did you start the company, what was the impetus behind it?
Mendelssohn: Although I loved my previous job, the opportunity to launch a startup and try to make an impact was something I couldn’t turn down. More specifically, in LNG trading, freight was becoming an increasingly important part of the LNG value chain but there was no standardized, accepted index. This created significant challenges, but there was also no choice available to traders. As a trader, I always wanted optionality but there was never any choice on who was defining the freight prices and indices. With Spark, my goal has been to provide the market with that choice and with LNG freight, that’s what we’ve done.
NGI: What makes Spark’s freight assessments unique from its competition?
Mendelssohn: Initially, the adoption of our index was led by the relevance of our methodology to the market, specifically our use of LNG as fuel. Over time, as other price reporting agencies (PRA) have adjusted their methodologies, the differences have become smaller. For us, a key differentiator is our focus on transparency throughout the platform. We believe that for people to understand our numbers and trust them, transparency is super important. We use the technology of our platform to give people greater insight, which leads to more trust and, in time, we think this will lead to greater and faster adoption.
While I can’t make Spark 250 years old, like our competition, we have deliberately built an organization that is designed to listen to and respond to the market. We spend a huge amount of time engaging with the market. Having started with no code and no customers two years ago, there’s now over 200 companies using Spark, from portfolio players and trading companies, to banks and consultancies. If you logged into Spark two years ago, and then logged into it now, you would see a fundamentally different platform. I think this demonstrates that the market wants progress and the tools we use must evolve to support our customers in better understanding their markets.
NGI: It’s clear the LNG market has evolved. There’s more liquidity, spot trading and financial instruments to manage risk. Would it have been possible to launch Spark in the market 20 years ago?
Mendelssohn: No, I don’t think so. I think we’ve seen a shift in the mindset and a natural evolution as the market matures, with people needing to better manage risk via financial contracts. There’s also a greater willingness today to use new tools and adapt as the global energy complex changes. I think the market is changing, and I come back to the idea of optionality. It’s really important, because in any other part of our lives as consumers, we demand choice. It underlies the decisions we make. That did not exist in the LNG sector for a long time.
NGI: How did the deal with ICE come about, and how has the market responded since the freight futures contracts were launched?
Mendelssohn: For the last few years, the race between different PRAs was on to see who could get the listing with ICE given their strength in the LNG market. CME Group launched freight futures in December 2019 that are based on the Baltic Exchange’s assessments. Since Spark’s inception, achieving a listing has been a key focus area for us so we had been in close discussions with ICE as they assessed the different options available to them. We achieved the listing and launched on March 22, a key milestone for us. We’ve been taking on giants within our industry, and as a startup that’s a challenge. But that’s also where the opportunity is because we can be much more progressive, responsive, relevant and forward looking. And that’s hopefully reflected in the fact that we’ve got an ICE listing. That was a massive step for us.
Now there’s a CME/Baltic contract and an ICE/Spark contract. We are now focused on step two: developing a liquid set of LNG freight contracts for our customers. As freight becomes an increasingly important part of the value chain, as an industry, we need a liquid contract. It will take time to develop forward freight markets in LNG, but we are confident that our technology, customer-centric approach and robust assessments combined with ICE’s strength across the natural gas value chain puts us in a strong position to deliver this to the market.
NGI: Can you talk at all about how these freight futures contracts might benefit the broader LNG market and help create more trade for the commodity?
Mendelssohn: The reason we’ve gone after freight is very deliberate. There is the literal hedging of a vessel position that freight contracts provide, but there’s also a wider application for traders, producers, importers, regional gas traders and others.
You can understand netbacks, you can understand net forwards and spreads between basins with a freight index. If I just look at the Henry Hub to Japan-Korea Marker spread — and I don’t understand the freight component — it’s very difficult for me to understand the potential flow impact and arbitrage opportunities. So the application of me having a freight derivative as well as the index as a reference should help wider gas markets better understand prices, spreads and opportunities in a much more meaningful way. These additional applications make it more relevant to a wider group of stakeholders which, in turn, should drive more liquidity.
NGI: Is Spark working on offering any other data beyond LNG freight?
Mendelssohn: Spark started in LNG freight and we are working hard to become the industry standard. But we have also built our technology to be commodity-agnostic, and we see big opportunities to expand our offerings into other associated areas. I can’t say too much at the moment, but we have a lot of customers asking us to go into different freight markets or into different LNG cargo markets. That’s something we’re looking at.
Editor’s Note: This segment is one in a regular series by NGI’s LNG Insight. Conversations with experts explore news and issues throughout the global LNG market that matter most to the industry in North America and beyond. Excerpts have been edited for brevity and clarity.
Mendelssohn formerly worked at BP plc as a global LNG operations analyst and cargo operator. He later joined Koch Supply & Trading LP in various roles, including as an LNG trader.
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