Connect with us

Investing

Managing LNG Portfolio Risk in a Diverse Global Energy Market

Published

on

Managing LNG Portfolio Risk in a Diverse Global Energy Market

By Michael Hinton, Chief Strategy and Customer Officer at Allegro Development Corp. 

The LNG market today is vastly different than it was just a few years ago, and it will continue its upward swing into becoming a large portion of the world energy mix. In fact, according to the 2018 BP Energy Outlook[i], LNG trade is growing seven times faster than pipeline gas, and by 2035, it will account for around half of all globally traded gas.

While expanding into the LNG global export market can be profitable, proper LNG portfolio management represents a series of major, ongoing challenges. The trading lifecycle of LNG involves a large number of players responsible for a host of functions – natural gas suppliers, liquefaction plants, transport operators, terminal operators, regasification plants, storage facilities, pipeline operators, and natural gas utilities.With these functions comes the natural gas production, liquefaction, loading transportation, unloading, storage, regasification, and distribution,along with the management of the many associated financial processes. All these functions and processes make an LNG business a complicated undertaking.

Global LNG exports are creating more opportunity and adding more complexity

Michael Hinton,

Michael Hinton,

Now that the United Stateshas been ramping up its LNG exports and the balance of natural gas supply and demand worldwide has shifted drastically, the traditional global supplier and customer relationships in this market are rapidly changing. With this shift in the global supply and demand comes vast opportunities, but also adds even more complexity to the portfolio management of energy companies that sell and purchase on a global scale.A traditional domestic gas supplier will see LNG cash cycles lengthen due to the time and logistics required for LNG global transportation. Throughout these cash cycles, energy companies have to keep top of mind the price fluctuations in natural gas, credit risk on foreign entities, currency exchanges, and other factors when executing trades and managing assets. The ability to accurately track all of the aforementioned variables can seem impossible, and many large energy companies have still not mastered this abilitiy.

Increased market competition and oversupply is shrinking trade margins and amplifying risk

In the US alone, LNG exports quadrupled last year, and in the next 5 years, is projected to become the number two supplier of LNG. With gas production rising, domestic gas prices have fallen, creating a competitive advantage for US companies to export LNG to global buyers. “This business can be thought of as an arbitrage between low domestic prices and high global prices, although it is not an inexpensive opportunity to exploit.” –U.S. Commodity Futures Trading Commission (CFTC)[ii].

In response to the evolving market, traders across the world are expanding their LNG businesses to gain efficiencies in logistics and operations in order to maintain margins. However, as presence in the LNG market increases, risk increases as global exports require a much more complex logistics chain and longer pay cycles, which means these companies require more hedging and credit risk analysis capabilities.

Additional optionality can improve margins. Or not.

Charif Souki, Chairman at US LNG developer Tellurian Inc[iii]. said that in the next two years, some 20 cargoes would be available every day on the spot market, or 5,000 cargoes a year. “You’re never very far from a cargo.”

Having options can be a good thing, right? For those in the energy market, trading and logistics options come with a price: increased risk exposure. With operating expenses, fuel/raw materials and deductions all impacting the bottom line, producers and traders are having to also take into account the many transportation and storage options that are now tied to each global trade.

Alternatively, if domestic gas prices become too volatile, natural gas utilities and natural gas generators will find it possible to supplement or replace their natural gas supplies with LNG imports. Because of energy market volatility, the tricky part for buyers is knowing when to purchase, how much to purchase, and who they should purchase assets from.

LNG trading contract changes are forcing producers and buyers to renegotiate

S&P Global Platts[iv] and other leading industry experts have projected that continued growth in global LNG exports will mean more competition in the market, resulting in more short-term options for buyers who decide to renegotiate or completely do away with long-term contracts. Customers of existing long-term contracts that are reacting to oversupply conditions largely fall into two groups: those that are seeking to re-negotiate pricing and those that do not have enough demand to meet their contractual commitments. That said, producers and buyers are reconsidering and renegotiating their traditional sales purchase agreements (SPAs).

Reuters [v]is reporting that Indian gas utility Gail has switched its LNG purchasing focus to short-term and spot deals in order to meet rising demand and they are making greater use of hedging against price volatility. Other companies have followed suit, signaling an uphill battle for producers as lower spot prices for global oversupply will continue to result in more contract revisions.

Many market participants are now contracting under an LNG master sales and purchase agreement (MSA), specifically intended for use with spot and short term agreements with substantial flexibility for the buyer and seller to customize the agreement to their needs.The rise in short-term contracts has led to a significant increase in the number of participants in the LNG derivatives market, which will enhance optionality, but add long-term market exposure, which adds yet another layer of complexity to global energy portfolio management.

These industry changes have not only altered the nature of how LNG contracts are structured, but also has affected spot pricing and trade margins, resulting in a shift away from the traditional producer and consumer relationships to a more competitive trading market. Additionally, the development of a deep and competitive LNG market is likely to cause long-term gas contracts to be increasingly indexed to spot LNG prices.

The need for a sophisticated, modern commodity trading platform

The already complex natural gas and LNG portfolio value chain continues to become even more complicated as the global export market grows, market competition increases, oversupply outweighs demand, and LNG contracts shift to spot or short-term agreements. Depending on how proactive industry participants are, these market changes can either provide businesses with growth opportunities or spell out a recipe for disaster. It is important now, more than ever, that industry participants are prepared for drastic changes in portfolio management and supporting software infrastructures.

LNG producers, LNG traders, LNG transporters, natural gas utilities, and natural gas generators who lack strategic insights and responsive technology are limited in their ability to see the full picture and portfolio exposure. This increases the potential for risk as positions and inventories aren’t being optimally managed. In addition, insight into the true underlying exposure to pricing markets is hidden. As a result, decisions might be made without the best possible information, leading to not only increased operational risk, but also missed growth opportunities.

In order to effectively manage portfolio risk and take advantage of opportunities created in a constantly evolving energy market, companies require an enterprise software platform that not only provides full value chain management, but also advanced quantitative risk analytic capabilities that can aid in valuing, modelling, and hedging of physical assets and derivatives. A comprehensive commodity management software (also known in the industry as CTRM or ETRM software),such as Allegro Horizon, will further address energy market opportunities and risks by integrating all physical and financial aspects to manage the entire LNG lifecycle, from production of the natural gas, through liquefaction of natural gas to LNG and transportation of LNG, to the re-gasification of LNG back to natural and consumption and distribution of the natural gas.

Investing

A practical guide to the UCITS KIIDs annual update

Published

on

A practical guide to the UCITS KIIDs annual update 1

By  Ulf Herbig at Kneip

We take a practical look at the UCITS KIID

What is a UCITS KIID and what is it used for?

The Key Investor Information Document (KIID) is a 2- or 3-page summary document detailing a fund’s charges, risk & reward profile, past performance and the overall objectives and investment policy.

What does the regulation say about the annual update?

In terms of annual updates, according to EU Regulation 583/2010, Fund Managers have 35 business days (excluding weekends) from December 31 to issue a revised version of the KIIDs including the performance of the calendar year that just ended.

The Regulation says that the documents must not only be produced but also made available to investors before the 35-business-day-delay is elapsed. This means that Fund Managers must compute the past performances for the year 2020, update the documents that are currently made public, in all applicable languages, proceed with filing to regulators and ensure that these documents are published on websites.

When is the deadline this year?

In the absence of any legal holiday in January and February, the deadline is set to 35 business days from January 1st, which leads to Friday 19 February 2021.

If there is a legal holiday between January 1st and February 19th, then the deadline can be extended accordingly to the next business day. However, we always recommend sticking to the deadline without taking any legal holiday in January or February into account.

What can be challenging with the annual update?

The annual update production cycle can be challenging in many areas:

Scope management. Overall, the scope of the annual update must be the first and foremost task to be done, early in January. The annual update must be done on all share classes for which performances for at least on full calendar year (real or simulated) can be shown. This means that share classes launched in 2020, where the Fund Manager does not want to show simulated performances, may be excluded from the scope of the annual update of 2021. The monitoring of the KIIDs for these share classes launched in 2020 shall continue its normal life but will not be affected by an update of performance as long as there is not a full calendar year of performances to be shown.

Computation of 2020 past performance. this is the main task to be done in relation to the annual update and is a mechanical computation of the net performance of the share class or the fund from 31 Dec 2019 to 31 Dec 2020, with an assumption of the dividends paid during the year being reinvested into the fund.

Consideration of inactivity periods during 2020. When the share class of the fund had one or more periods of inactivity during the year, then the following question is to be considered: Do we, as a manufacturer, show either a) no performance for 2020 in the KIID and provide a written explanation instead, or b) show the 2020 performance in the KIID and simulate the performance during the dormancy period based on a benchmark?

Material changes other than past performance to be incorporated in the KIID. Very often the annual update is also a time where other changes may be incorporated, being driven by changes in the regulation or changes triggered by a modification of the prospectus. We would tend to consider the implementation of these changes at the same time as the KIID annual update production, to make sure the filing to home and host regulators is being done once and for all.

Is this year’s annual update any different?

In terms of document production, the processing remains the same as the previous years, even though the year that just ended may have been tough for many organizations and might have impacted the net performance of the funds.

Should you already start to think about the move from KIID to KID?

As of today, the grandfathering for Asset Managers allowing them to produce and issue a UCITS KIID in lieu of a PRIIPs KID will come to an end on Dec 31, 2021. This means that this year should be the last year of having to handle an annual update of the KIIDs and that a PRIIPs KID will have to be produced from Jan 1, 2022. Therefore, the time to start thinking about the move to the PRIIPs is now.

However, there is currently no approved regulatory technical standards (RTS) available at the level of European Supervisory Authorities, which means that product manufacturers do not have any guidelines as to how to produce the PRIIPs KIDs by Jan 1, 2022. We expect to have draft RTS issued by the ESAs by end of January, with a final version to be ratified by the EU Commission one of two months later, as the earliest.

This means that the implementation timeframe, if the deadline is maintained, will be very limited and will put significant pressure on product manufacturers to get this implementation over the line within deadline.

There is also a possibility that a further extension of the grandfathering period is granted, which would extend the use of the UCITS KIID for a longer period. This, if applied, would be a welcomed relief for market participants in the fund managers who are already under huge regulatory pressure.

Continue Reading

Investing

How to Take Control of Retirement Planning in 2021 and Beyond

Published

on

How to Take Control of Retirement Planning in 2021 and Beyond 2

What does your dream retirement look like? What kind of lifestyle do you imagine? Maybe you’re planning to travel more, or perhaps you’re thinking of going back to school. Maybe that passion for photography could become a new business, or perhaps you’re simply looking forward to taking a break and enjoy spending more precious time with those you love.

Whether retirement will see you bungee jumping in South Africa, or trampoline jumping with the grandkids, Steve Pennington, Head of Wealth Planning at Private and Commercial Bank Arbuthnot Latham discusses how planning your retirement now will help bring those dreams the chance of becoming reality.

There are so many “what if’s” and unknowns to take into consideration that retirement planning can feel daunting.  What kind of retirement lifestyle can you actually expect? What if I want to (or need) retire early? What if I or my partner needs care in older age? What if my children or grandchildren need financial support? What if I want to buy a Jaguar E Type? What if my investments fall?

2020 has only added to these concerns, so what can you do to feel more in control?

Understanding what you want to achieve is the first step. Is the key goal to maintain your lifestyle in retirement, or do you have different priorities? By looking at your cash flow today and modelling a range of anticipated cash flow scenarios in retirement, you can immediately visualise your future financial position. Through building in key personal milestones such as a change in lifestyle, travel, downsizing, buying that car, or selling a business, you can build a clearer of picture of what you’ll need and when.

More than 10 years until retirement

Look at your current later life provisions. How do you intend to use your non pension assets in retirement? How and when do you actually intend to use your pensions? Are you planning to stop working before you’re eligible to access your formal pensions? Do you have a personal or company pension? If you’ve worked for a number of companies, you may have several. Have you considered consolidating your pension arrangements? Have you checked how your retirement funds are performing, and if your circumstances and ambitions have changed since you last reviewed them?

If you are earning more than you spend, it’s also worth thinking about what you’re doing with your excess income. Inflation erodes the value of savings over time, meaning your purchasing power in the future is reduced. Of course, everyone needs cash reserves, but could you invest more now, using tax advantages, so that your retirement ambition has a more certain outcome?

Less than 10 years until retirement

If you’re approaching retirement, you probably already have a rough idea of your retirement plan. It’s also likely that you’ve experienced some investment turmoil over the years which may have caused unease and uncertainty. When you have financial plans in place it can be tempting to just stick with your current investment arrangements, whether they are performing or not, or perhaps you have been thinking about making some changes but need guidance and advice. Professional advice at this time can help you feel in control of your finances and your future.

If you’re feeling unsure about the state of your investments, or how your finances are arranged, it’s important to find an adviser who can review your circumstances and discuss suitable options in order to address your objectives. As you near retirement, it’s even more important to review your appetite for risk, capacity for loss and complete a financial health check to assess whether you are on track.  Often Investors are happier to take fewer risks as retirement approaches, but this is not always the best course of action. Consider that pensions may need to provide you with income for the rest of your life.

Already retired

If you’re already retired, you’ll already be using your assets to fund your lifestyle. It’s certainly worth reviewing how you are using your assets to provide income. At this stage of life, many people’s financial goals change from investing for growth to investing for income. However, as people live longer, retirement is often broken into different stages, allowing you more control over how you structure your finances and access your wealth at a future date to deliver different benefits at different times.

To find out if your retirement dream is achievable take this short quiz here:  https://www.arbuthnotlatham.co.uk/insights/retirement-quiz

Continue Reading

Investing

Not company earnings, not data but vaccines now steering investor sentiment

Published

on

Not company earnings, not data but vaccines now steering investor sentiment 3

By Marc Jones and Dhara Ranasinghe

LONDON (Reuters) – Forget economic data releases and corporate trading statements — vaccine rollout progress is what fund managers and analysts are watching to gauge which markets may recover quickest from the COVID-19 devastation and to guide their investment decisions.

Consensus is for world economic growth to rebound this year above 5%, while Refinitiv I/B/E/S forecasts that 2021 earnings will expand 38% and 21% in Europe and the United States respectively.

Yet those projections and investment themes hinge almost entirely on how quickly inoculation campaigns progress; new COVID-19 strains and fresh lockdown extensions make official data releases and company profit-loss statements hopelessly out of date for anyone who uses them to guide investment decisions.

“The vaccine race remains the major wild card here. It will shape the outlook and perceptions of global growth leadership in 2021,” said Mark McCormick, head of currency strategy at TD Securities.

“While vaccines could reinforce a more synchronized recovery in the second half (2021), the early numbers reinforce the shifting fundamental between the United States, euro zone and others.”

The question is which country will be first to vaccinate 60%-70% of its population — the threshold generally seen as conferring herd immunity, where factories, bars and hotels can safely reopen. Delays could necessitate more stimulus from governments and central banks.

Patchy vaccine progress has forced some to push back initial estimates of when herd immunity could be reached. Deutsche Bank says late autumn is now more realistic than summer, though it expects the northern hemisphere spring to be a turning point, with 20%-25% of people vaccinated and restrictions slowly being lifted.

But race winners are already becoming evident, above all Israel, where a speedy immunisation campaign has brought a torrent of investment into its markets and pushed the shekel to quarter-century highs.

(Graphic: Vaccinations per 100 people by country, https://fingfx.thomsonreuters.com/gfx/mkt/azgvolalapd/Pasted%20image%201611247476583.png)

SHOT IN THE ARM

Others such as South Africa and Brazil, slower to get off the ground, have been punished by markets.

Britain’s pound meanwhile is at eight-month highs versus the euro which analysts attribute partly to better vaccination prospects; about 5 million people have had their first shot with numbers doubling in the past week.

Shamik Dhar, chief economist at BNY Mellon Investment Management expects double-digit GDP bouncebacks in Britain and the United States but noted sluggish euro zone progress.

“It is harder in the euro zone, the outlook is a bit more cloudy there as it looks like it will take longer to get herd immunity (due to slower vaccine programmes),” he added.

The euro bloc currently lags the likes of Britain and Israel in terms of per capita coverage, leading Germany to extend a hard lockdown until Feb. 14, while France and Netherlands are moving to impose night-time curfews.

Jack Allen-Reynolds, senior European economist at Capital Economics, said the slow vaccine progress and lockdowns had led him to revise down his euro zone 2021 GDP forecasts by a whole percentage point to 4%.

“We assume GDP gets back to pre-pandemic levels around 2022…the general story is that we think the euro zone will recover more slowly than US and UK.”

The United States, which started vaccinating its population last month, is also ahead of most other major economies with its vaccination rollout running at a rate of about 5 per 100.

Deutsche said at current rates 70 million Americans would have been immunised around April, the threshold for protecting the most vulnerable.

Some such as Eric Baurmeister, head of emerging markets fixed income at Morgan Stanley Investment Management, highlight risks to the vaccine trade, noting that markets appear to have more or less priced normality being restored, leaving room for disappointment.

Broadly though the view is that eventually consumers will channel pent-up savings into travel, shopping and entertainment, against a backdrop of abundant stimulus. In the meantime, investors are just trying to capture market moves when lockdowns are eased, said Hans Peterson global head of asset allocation at SEB Investment Management.

“All (market) moves depend now on the lower pace of infections,” Peterson said. “If that reverts, we have to go back to investing in the FAANGS (U.S. tech stocks) for good or for bad.”

(GRAPHIC: Renewed surge in COVID-19 across Europe – https://fingfx.thomsonreuters.com/gfx/mkt/xegvbejqwpq/COVID2101.PNG)

(Reporting by Dhara Ranasinghe and Marc Jones; Additional reporting by Karin Strohecker; Writing by Sujata Rao; Editing by Hugh Lawson)

Continue Reading
Editorial & Advertiser disclosureOur website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.

Call For Entries

Global Banking and Finance Review Awards Nominations 2021
2021 Awards now open. Click Here to Nominate

Latest Articles

Staying connected: keeping the numbers moving in the finance industry 4 Staying connected: keeping the numbers moving in the finance industry 5
Finance8 hours ago

Staying connected: keeping the numbers moving in the finance industry

By Robert Gibson-Bolton, Enterprise Manager, NetMotion 2020 will certainly be hard to forget. Amongst the many changes we have come to...

How to lead a high-performing team 6 How to lead a high-performing team 7
Business11 hours ago

How to lead a high-performing team

By Matthew Emerson, Founder and Managing Director, Blackmore Four When we think about a great team, the image we conjure...

A practical guide to the UCITS KIIDs annual update 8 A practical guide to the UCITS KIIDs annual update 9
Investing1 day ago

A practical guide to the UCITS KIIDs annual update

By  Ulf Herbig at Kneip We take a practical look at the UCITS KIID What is a UCITS KIID and what...

Oil prices steady as lockdowns curb U.S. stimulus optimism 10 Oil prices steady as lockdowns curb U.S. stimulus optimism 11
Business1 day ago

Oil prices steady as lockdowns curb U.S. stimulus optimism

By Noah Browning LONDON (Reuters) – Oil prices were steady on Monday as support from U.S. stimulus plans and jitters...

Dollar steadies; euro hurt by vaccine delays and German business morale slump 12 Dollar steadies; euro hurt by vaccine delays and German business morale slump 13
Business1 day ago

Dollar steadies; euro hurt by vaccine delays and German business morale slump

By Elizabeth Howcroft LONDON (Reuters) – The dollar steadied, the euro slipped and riskier currencies remained strong on Monday, as...

Hong Kong's Cathay Pacific warns of capacity cuts, higher cash burn 14 Hong Kong's Cathay Pacific warns of capacity cuts, higher cash burn 15
Business1 day ago

Hong Kong’s Cathay Pacific warns of capacity cuts, higher cash burn

(Reuters) – Cathay Pacific Airways Ltd on Monday warned passenger capacity could be cut by about 60% and monthly cash...

Stocks rise on recovery hopes 16 Stocks rise on recovery hopes 17
Business1 day ago

Stocks rise on recovery hopes

By Ritvik Carvalho LONDON (Reuters) – Global shares rose to just shy of record highs, as optimism over a $1.9...

Fragile recovery seen in global labour market after huge 2020 losses - ILO 18 Fragile recovery seen in global labour market after huge 2020 losses - ILO 19
Business1 day ago

Fragile recovery seen in global labour market after huge 2020 losses – ILO

By Stephanie Nebehay GENEVA (Reuters) – Some 8.8% of global working hours were lost last year due to the pandemic,...

"Lockdown fatigue" cited as UK shopper numbers rose 9% last week 20 "Lockdown fatigue" cited as UK shopper numbers rose 9% last week 21
Business1 day ago

“Lockdown fatigue” cited as UK shopper numbers rose 9% last week

LONDON (Reuters) – The number of shoppers heading out to retail destinations across Britain rose by 9% last week from...

Alphabet's Verily bets on long-term payoff from virus-testing deals 22 Alphabet's Verily bets on long-term payoff from virus-testing deals 23
Business1 day ago

Alphabet’s Verily bets on long-term payoff from virus-testing deals

By Paresh Dave OAKLAND, Calif. (Reuters) – For Alphabet Inc’s Verily, a healthcare venture that is one the tech giant’s...

Newsletters with Secrets & Analysis. Subscribe Now