CWC: How is the Asian LNG business evolving for a new environment?
Lily Chia (LC): The emergence and growth of natural gas as a primary fuel source has been a key feature of the evolving global energy mix over the 20th century and into the 21st. While this change has run in parallel with a significant investment in pipeline transportation infrastructure throughout Europe and North America, this has not been the case in the Asia Pacific basin where energy demand is geographically diverse and in many cases islanded. The Asia Pacific region has become a powerhouse of economic growth, increasing from 30% of world economic output in 2000 to 40% by 2014. In order to continue to fuel economic growth across the region, a reliance on liquefied natural gas (LNG) has arisen as a means to cost-effectively transport natural gas from upstream production fields to centres of demand (predominately electricity utilities and city gas networks).
While Europe and Northern America have seen the development of market or balancing pricing for gas, this has largely not occurred in Asia Pacific. The development of a regional price for gas is critical to ensure that gas resources are efficiently developed, managed, procured and utilised, now and into the future, to ensure that fuel stock is correctly valued and deployed.
CWC: What role do you think China will play in global LNG trading?
LC: China is expected to more than double their import volume between 2014 and 2018, according to industry projections. This will likely make China the second largest importer after Japan in the next few years. Hence, their impact on the LNG market will be significant. As we have seen, China has made its LNG ambitions clear with investment in production projects in a diverse range of countries such as Australia, Canada and Mozambique and also developing LNG shipbuilding capabilities.
CWC: What role does Singapore Exchange play in the LNG trading industry?
LC: SGX’s role in commodities markets is primarily in providing platforms for price discovery and risk management. Through its subsidiary the Energy Market Company (EMC), SGX has introduced an Asian LNG spot price index, known as SLInG since September 2014. SLInG was created in consultation with the LNG industry to meet the market need for gas-to-gas pricing in step with the development of the spot market for LNG. SLInG is calculated based on the consensus assessments of a balanced group of up to 22 physical market consumers, producers and traders. SGX aims to provide a transparent, reflective and trusted spot index to serve the Asian LNG market. SLInG is quoted as the price of a cargo situated in the vicinity of Singapore waters, originating from and en route to any location. It aims to isolate the price to the commodity itself so that users of the price can use it as the floating price element in their pricing formula together with other costs such as freight, discharge and tax.
To meet risk management needs, SGX has also launched swaps and futures based on SLInG with contracts listed up to a year forward.
For more information, please visit www.sgx.com/commodities/lng
Lily is Head of Oil, Power & Gas for Derivatives in SGX. Her responsibilities include oversight of the team managing the exchange’s oil, gas, power, rubber and petrochemical derivative products. In her 16 years in SGX, Lily also held positions in various functions including bulk commodities, derivatives and securities broker sales, the CEO office and securities listings development.
Prior to SGX, Lily was Middle Office and Credit Manager at DBS TD Waterhouse, an online securities brokerage firm. She commenced her career in the former Singapore International Monetary Exchange (SIMEX) in 1996.
Lily was educated at the National University of Singapore and is a Chartered Financial Analyst.