Natural gas/LNG house of the year: Macquarie Group
Energy Risk Awards 2019: Volume growth, geographic expansion and innovative gas deals make a standout year for banks’ commodity markets and finance division
Over the past 18 months, gas trading carried out by Macquarie Group’s commodity markets and finance (CMF) division has gone from strength to strength, with a significant increase in traded volumes, geographic expansion and an array of innovative deals.
Volumes of traded physical gas have risen by almost 45% over the past 18 months to reach an average of 13 billion cubic feet per day (cf/d) in the first quarter of 2019, up from 9.6 billion cf/d in Q3 2017, prior to the firm’s September 2017 acquisition of Cargill’s North American gas and power business.
“We’ve experienced a lot of growth in our customer franchise in the last 12–18 months on the back of our overall business maturing, but also the completion of the integration of the Cargill business,” says Houston-based Nick O’Kane, head of commodities and global markets group and co-head of the group’s North American gas and power business. “This gave us a significant increase in the number of customers we’re covering across various aspects of the North American gas markets.”
The Cargill acquisition brought the group a significant presence in Canada and a large amount of gas transportation. The group was ranked by Platts as the second biggest marketer of North American gas in 2018. Prior to the Cargill purchase, it was ranked in fourth place.
A major focus for the Macquarie team over the past 12–18 months has been helping producers move their production out of the congested regions of the Permian basin and Alberta, O’Kane says. This involves buying capacity, taking title of the gas through the pipelines and taking it to market. The group has been able to offer this service through its deep presence in the market, which gives it a granular understanding of producer and consumer activity, enabling it to accurately judge the volumes of gas that would be requiring pipeline transportation.
“Over the past 18 months we’ve increased the total volumes of gas we move through pipelines in North America by 39%,” says O’Kane. This breaks down to a 24% increase in transported volumes in the west of the US and a rise of 105% in Canadian volumes, he says.
One thing that’s a bit different about our business from some others is connectivity globally. We have a large gas trading business in Europe and the UK and a gas trading business in Australia, so that gives a lot of insight into what is driving LNG globally
Nick O’Kane, Macquarie Group
A growing market for the gas is Mexico where the CMF division has been building out its gas business, helping to supply the domestic market there as it deregulates. “Our eight-strong Mexico team gives us connectivity all the way from Canada, through the US and down into Mexico,” says O’Kane. The group’s exports of pipelined gas to Mexico – mainly to large industrials – have increased by 37% over the past 18 months, he adds.
Demand for the group’s hedging services also rose last year, particularly from clients wanting to hedge arbitrage risk between the US, Europe and Asia,” O’Kane says. “Our hedging activity has really picked up over the last 12 months and we’re seeing a lot of interest in this from our Asian clients,” he adds.
As well as continuing to integrate the Cargill business and bringing over new customers from those businesses, the CMF team continued to innovate last year, rolling out a new type of liquefied natural gas (LNG) trade in May 2018. The contract is designed to help clients manage arbitrage risk – in this case the risk of a price mismatch between their purchase and sale of LNG – by offering delivery flexibility. Under the contract, clients can choose to deliver LNG into alternative ports. The exact parameters of the optionality in the contract depend on price differences at the trade inception as well as any specific details on annual delivery that might define deadlines for certain nominations. The flexibility is effectively a financial spread option that can be monetised by paying an upfront premium. Since the initial trade, seven other similar deals have been done.
“Macquarie is able to offer this flexibility because we have the tools and capability to adjust pricing according to the circumstance,” says O’Kane. “One thing that’s a bit different about our business from some others is connectivity globally. We have a large gas trading business in Europe and the UK and a gas trading business in Australia, so that gives a lot of insight into what is driving LNG globally.”
Another new type of deal pioneered by the CMF team involves combining physical natural gas supply with bespoke payment terms in order to help clients manage working capital needs. The standard settlement terms for physical natural gas is payment 25 days after delivery month, but this structure creates a deferred payment structure contingent upon on a number of determining factors such as term of the transaction, capital position and collateral available. The first such trade took place in 2017, and the CMF group carried out five more such trades between April 2018 and March 2019.
To facilitate larger volumes, Macquarie will also look to syndicate this exposure with other institutions that do not have a physical commodity presence but have an appetite for credit risk in this space.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Commodities
Energy Risk Asia Awards 2024: The winners
Winning firms adapt to change with exemplary risk management skills
Foreign funds are bulls in China’s onshore commodity futures
Growing participation from overseas investors is boosting liquidity in what’s already a boom market
Energy Risk Software Rankings 2024: IT demands increase amid rising risk
Heightened geopolitical and credit risk increase requirements on commodities software
Energy Risk Asia Awards 2023: The winners
Winning firms demonstrate resilience and robust risk management amid testing times
ION Commodities: addressing the market’s recent pain points
Energy Risk Software Rankings winner’s interview: ION Commodities
Energy Risk Commodity Rankings 2023: adapting to new market dynamics
Winners of the 2023 Commodity Rankings provided reliability when clients faced extreme change
Energy Risk Software Rankings 2023: managing uncertainty
Unpredictable markets make CTRM software choices key
Navigating the volatility and complexity of commodity markets
Commodity markets have experienced significant challenges since the Covid-19 pandemic, the conflict in Ukraine and the subsequent sanctions imposed on Russia. These unprecedented events have caused fluctuations in supply and demand, disrupted global…