Editor’s Note: The following segment is one in a series by NGI’s LNG Insight focused on exploring how the global liquefied natural gas (LNG) market works. The conversations in this series will also analyze news and the issues that matter most to the industry in North America and beyond.
Melissa Lindsay is the founder of UK-based Emstream, an LNG brokerage, and Emsurge, an online platform that launched last year to help facilitate the buying and selling of LNG and better connect the global marketplace. She is the former global head of LNG at Tullett Prebon. She holds a bachelor’s degree in economics and international development from the University of Bath.
NGI: Can you explain how Emsurge works? Does it essentially connect buyers and sellers of LNG?
Lindsay: Yes. We have developed the software so that it creates a single point of entry for market data that can be shared with others on the network. This means we avoid the issue of needing to build a critical mass of users before the system has value. The idea was that it should have value to just one user, but increasing value as more people join. At its core is a databasing tool to capture the complexity of each LNG deal, enabling faster retrieval, team collaboration and more efficient trading.
What we want to get to, though, is a stage where all participants take ownership of their orders and send them directly to others to reduce individual workloads. The uniqueness of this system is that I can create an LNG order and provide an encrypted link where people not on the system can still check the order status.
By the time I send an email to someone saying that I want to buy a cargo on certain terms and maybe they’re traveling, or it’s the weekend, and they don’t have a chance to look at it in time, I might have changed my mind and traded already. With a live link, the status of the order can change. If the link expires, or my price has moved, it will automatically update.
For brokers like Emstream, we operate a hybrid system where information can be internally logged or anonymously shared with others in the network. Many traders still don’t want orders flashed around the market but are happy for them to be worked more discreetly. Others will want the speed a broker and technology can bring to canvassing the market.
Traders can log into the Emsurge system and look for, say, a cargo in August, see instantly if anything is available on the dates they need it, and get an indication of where prices are. They can then make an informed decision before posting their interest or contacting the broker/traders directly.
Emsurge is a more efficient way of disseminating bids and offers. It allows people to connect faster, to find more opportunities and to put data in a consistent format for better analysis when they need it. For me, it wasn’t about a transactional platform, because people are trading fine, it’s the big data that goes along with a trade, it’s all the information you’re gathering through pre-trade, through post-trade and then really utilizing that for the next trade you do.
NGI: How many companies are currently using Emsurge?
Lindsay: Spanish utility Naturgy was the first company to sign up. We’ve got over 70 traders from more than 25 companies trialing right now and are adding 1-2 each week. We worked hard to get a balance of utilities, producers, end-buyers in Asia, portfolio players and trading houses. It’s a spectrum of counterparties in the LNG market.
I think that the majority of our users like to use the software as an internal tool. But it’s a mix of people who really want to use it as a broking platform and route to market, people that want to use it purely for data and others that want it to streamline their workflows.
The majority of companies at the moment are in that phase of learning how to adopt it. People are realizing if they save their bids and offers in an organized format, it can save them time down the line, especially with everyone working remotely right now.
NGI: What makes this technology unique for LNG traders and why does it matter in today’s market?
Lindsay: When I started designing this and asking traders what they use to buy and sell LNG, none of them had a system that was anymore efficient than Microsoft Excel or email. Everyone said that they would also find an internal tool equally useful to database bids and offers within their companies. This project has been going on over the last three or four years, and during that time, the appetite for electronic trading, or the appetite to use some kind of platform to trade faster, has grown.
LNG as an industry is very relationship-based.
Emsurge is really similar to something like Linkedin or Facebook. If you’ve got no one on it, it has limited value. If everyone in the industry is using Emsurge, then it has that value of being able to connect people as well as database intel. It’s really another way to help people connect on a personal level as opposed to trying to get people to just trade electronically.
NGI: Can you talk a little bit more about how the software can better connect market participants?
Lindsay: All users form part of a directory as I felt keeping track of the traders at each company was becoming a task itself. Centralizing this information saves time in maintaining contact sheets.
Also, by using technology we can do the mundane tasks faster, leaving more time to talk to counterparties. The system can also be used by brokers to broadcast messages on events, tenders, news, etcetera to the whole market. For example, I could post a link to this article.
NGI: Can subscribers actually place orders for physical cargoes on the platform?
Lindsay: Yes. It’s a bit like shopping for a house online with a real estate platform like Zoopla or Rightmove here in the UK. You shop for a house online, but you would never purchase the house online. The house is advertised online, but the transaction itself doesn’t take place on the real estate platform. However, the same platform will then be used to capture the trade data.
We allow people to put in an order for what they want and then negotiate multiple term sheets with multiple counterparties. So, if you’re looking for a cargo from Spain, and I’m selling a cargo from the United States, we’ll negotiate some middle ground on the terms, but at the same time, you might be negotiating with counterparties on cargoes from Nigeria or Russia.
We have a system that does not transact bids and offers, or the orders. It facilitates the creation of multiple contracts or negotiations and term sheets that trade offline. You can then later mark something as traded on the platform and create a full audit trail.
In the future, we may build in a contract and credit matrix to enable trades to be transactable online, but I just don’t believe the market is really ready for that yet, and the uniqueness of the counterparties in a trade alters what the best final terms will be. For example, selling a cargo with Japan, Korea, China and Taiwan flexibility to an end buyer that has no intention or means of diverting the cargo makes a position harder than it needs to be to optimize
NGI: Has it been challenging to attract new users to your platform?
Lindsay: Delivering software at an enterprise level to major oil and gas companies and utilities is challenging. They have much greater requirements than if you’re developing something for the consumer market. The speed at which large enterprises can adopt new technology is a barrier.
Getting someone to log into something every day, or to check it frequently, when you have so many other things to check online, you really have to be bringing an immense amount of value to the table and streamlining tasks.
NGI: Do you think your platform will help create more price transparency and liquidity in the global LNG market?
Lindsay: We would like to see a more efficient market and already have greater visibility of prices and where supply and demand is over the next few years. Many new potential buyers looking to transition from oil or coal to natural gas struggle because they don’t know what a fair price is because LNG is offered on so many indexes and terms. We hope to reduce that barrier to entry and make the international gas market more accessible — it just will take time for the traditional players to be more transparent. Motivations to reduce the global carbon footprint of the energy market is certainly helping.
The idea of the system is to be able to find more opportunities and trade faster. I would love for this to go in the direction that Uber did. Uber changed the size of their potential market; it allowed more people to take taxis. We would hope that with the efficiency technology can bring to the life-cycle of a trade, it should free traders to do more deals and optimize those trades.
You can use technology in so many different ways, especially once you’ve got everyone on this system, and I would say we’re flexible in the direction the users want to take Emsurge. We have built the system blockchain and are excited about the efficiency gains that technology could bring to supply chains. We also have a shareholder base of over 10 LNG traders and brokers from Europe and Asia who are providing continuous feedback.
From an indexation perspective, the available risk management tools are very limited for LNG trading. It’s hard to manage your exposure, even in markets where there are gas indexes like Europe or the United States. When you start talking about other regions, where there are no indexes or gas markers, risk management is really difficult. The industry needs to improve the risk management tools it has.
What we hope for in the future, and it might take some time, is a trade-based index. An index that’s derived from the bids and offers on Emsurge or transactions that are booked onto the blockchain. Whether or not those transactions originated here, or whether this is used to simply book the trades once they’re done, the data could then be handed over to a price reporting agency.
NGI: What makes Emsurge different from other technology-driven platforms that have emerged to serve LNG trading?
Lindsay: We were designed by traders for traders. We looked around at available systems and didn’t believe anything that operated in other markets was fit for LNG. We felt technology could help streamline our workflows but decided the point of trade was the best bit, so didn’t want that going online. My understanding is that the other platforms have gone after the point of trade and enabling transactions online — many are trying to standardize terms so they can put it on a screen.
What we’ve done is the opposite and gone after pre-trade and post-trade in terms of offering a single point of entry and an internal tool. We also believe that brokers are essential in building liquidity, so we built a broker version as well as a trader version.
It’s an option to engage the entire market or an opportunity for companies to better manage internal data among members of their team, who are quite often dislocated even without the coronavirus. It’s designed to have value for just one user, whereas the Global LNG Exchange or Redwood Markets LLC require a critical mass of market participants.
*Excerpts in this segment have been edited for brevity and clarity.
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