OTCGH AT A GLANCE
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BY ENERGY RISK MAGAZINE FOR FOURTH TIME IN NINE YEARS
HOUSTON –(May 15, 2019) – OTC Global Holdings (OTCGH), the world’s largest independent commodity interdealer broker, has been named 2019 “Broker of the Year” by Energy Risk, an internationally recognized publication in the global trade and risk management industry. The honor was announced at the Energy Risk awards gala in Houston on May 14 and this is the fourth time in nine years the firm has received the recognition.
“We are honored to receive this prestigious award once again, as it underscores the tremendous success OTCGH has enjoyed on behalf of our clients during the last year,” said Javier Loya, Chairman and Co-CEO of OTCGH. “While we are the largest independent commodities IDB in the world, we also operate in a rapidly transforming industry and know that recognitions like this would not be possible without the trust of our many clients or the hard work of our brokers across the globe.”
OTCGH earned this year’s recognition as a result of another year of outstanding performance and accomplishments, which included the one million transactions on its proprietary EOXLive platform; the launch of new data products such as a Coal Forward Curves and Freight Forward Curves; and the integration of real-time analytics into the EOXLive platform to facilitate transactions, provide more market intelligence tools, and make trading more efficient for users.
The award is a significant achievement for OTCGH and is reflective of the company’s continuing growth and success since its establishment in 2007.
“We have continued to grow our market share and stake in the industry year over year, and last year we were able to cement our global business model following the late 2017 acquisition of Oil Brokerage Limited,” added President and Co-CEO Joe Kelly. “While this honor is reflective of our many significant achievements over the past year, I also believe it’s indicative of the great things still ahead of us as a company.”
About OTC Global Holdings
Formed in 2007, OTC Global Holdings has become the world’s largest independent institutional broker of commodities, covering financial and physical instruments from offices in Chicago, Des Moines, Geneva, Houston, London, Louisville, New Jersey, New York and Singapore. The company is a leading liquidity provider on CBOT, ICE, NYMEX and NFX, ranking number one amongst its peers in numerous derivatives contracts across biofuels, emissions, commodity index products, crude oil, natural gas, natural gas liquids (NGLs), metals, petrochemicals and refined products, power, proppants, soft commodities, and weather derivatives. The company serves more than 450 institutional clients, including over 70 members of the Global Fortune 500, and transacts in hundreds of different commodity delivery points in Asia, Europe and the Americas. To learn more about the company, please visit www.otcgh.com or go to https://player.vimeo.com/video/146686709.
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The eyes of the world are on the UK Parliament, where members of the House of Commons on Friday again defeated a plan outlining terms for the UK to withdraw from the European Union (EU).
Nearly 52 percent of the UK electorate participating in the June 23, 2016, Brexit referendumvoted in favor of leaving the EU. UK Prime Minister Theresa May announced the following October that Brexit would occur on March 29, 2019. Since then, EU officials and May’s government have held negotiations seeking to strike a deal to facilitate an orderly exit.
With Friday’s 344-286 vote, the House of Commons has now on three occasions rejected Brexit deals advanced by May. Following a request by the prime minister to delay Brexit, the EU had said that it would grant an extension to May 22, 2019, if the UK Parliament approved the withdrawal deal. May had stated that she would leave office if Parliament approves the deal. The Brexit deadline is April 12, 2019.
MPs are expected to consider alternative options next week.
A “soft Brexit” would occur with a deal. A “hard Brexit,” also referred to as “crashing out” of Brexit, would take place without a deal. In either case, the UK would leave the EU; however, the soft Brexit would allow the UK to remain in a customs union with the EU. A hard Brexit would translate into the UK leaving the EU single market as well as the customs union.
Following Friday’s vote, the European Commission observed that a “’no-deal’ scenario” on April 12 will likely be the case but added that the EU has been preparing for it since December 2017.
“The EU will remain united,” the commission commented in a written statement. “The benefits of the Withdrawal Agreement, including a transition period, will in no circumstances be replicated in a ‘no-deal’ scenario. Sectoral mini-deals are not an option.”
The UK oil and gas industry continues to monitor Brexit developments with keen interest, and a spokesman for one of the country’s top industry trade groups told Rigzone Thursday what his organization is looking for amid the ongoing progress.
“The certainty and stability of a deal outcome is in the interests of our industry to help safeguard the value and potential of the UK’s offshore oil and gas industry,” Gareth Wynn, Oil and Gas UK’s stakeholder and communications director, told Rigzone. “We will continue to work with all parties and governments to ensure they understand what our sector needs and to encourage a constructive approach to securing a deal which achieves the priorities identified by industry and can command the necessary political support.”
Wynn pointed out that his organization’s priorities include:
- Protecting the offshore industry from future EU regulatory changes
- Minimal friction between the UK and EU
- Maintaining a strong voice in Europe
- Protecting energy trading and the internal energy market
- Protecting the industry’s license to operate.
Oil and Gas UK elaborates on each of the above points in a Jan. 21, 2019, posting on its website.
David Aron, managing director of London-based Petroleum Development Consultants (PDO), told Rigzone that his firm’s general views on Brexit concur with Oil and Gas UK’s position. Aron’s oil and gas consulting firm performs integrated subsurface, engineering and commercial studies for upstream and downstream clients, and he observed that Brexit-related uncertainty surrounding the Pound sterling has created challenges in terms of competing for projects outside the UK.
“Most of our work is carried out internationally and the current level of sterling currency uncertainty makes bidding for such projects more difficult,” Aron noted. “Having said that, though, we had a very large dollar-based contract at the time of the first Brexit vote in 2016 and its value went up by 20 percent reflecting the drop of the pound’s value against the U.S. dollar.”
According to this Feb. 14, 2019, Rigzone article, UK-based Tullow Oil plc has stated that its board is concerned about the effect a hard Brexit would have on the company’s staff members who are EU nationals.
In a conversation with Rigzone Thursday, Campbell Faulkner, Houston-based senior vice president and chief data analyst with the independent interdealer broker OTC Global Holdings, observed that a hard Brexit could adversely affect the flow of cross-border talent for the North Sea oil and gas sector.
Faulkner also speculated that a no-deal Brexit could effect a major change in cross-border energy commodity trading. He said it could put “a big damp blanket on the London model of international finance” and lead to “more robust involvement of Swiss firms.”
Houston Business Journal, Feb. 15, 2019
Houston may be called the energy capital of the world, but there’s a growing international market for a fuel that probably won’t be making its way out of the Bayou City’s ports any time soon — liquefied natural gas.
That’s particularly relevant because a burgeoning LNG spot market is starting to appear in the U.S. Gulf of Mexico, said Mike Varagona, vice president of business development for Houston-based Kinder Morgan Inc. (NYSE: KMI). Kinder Morgan is one of many companies trying to build an LNG export terminal on the Gulf Coast, looking to take advantage of the ravenous demand for the fuel in East Asia and the excess of supply in the U.S.
Cheniere Energy Inc. (Nasdaq: LNG) is the only company to complete an LNG export terminal on the Gulf Coast so far, and it is one of just three companies with such assets anywhere in North America. Cheniere has already been selling spot cargoes of LNG out of its Sabine Pass LNG Terminal in Louisiana, Varagona said.
And with more assets on the way, a vibrant Gulf Coast LNG spot market only becomes more likely, said Riccardo Bertocco, partner and managing director at Boston Consulting Group Inc., a management consulting firm based in Boston. Bertocco is one of BCG’s LNG experts. The only problem is that none of those terminals seem to be cropping up anywhere near Houston.
“If you think about LNG facilities, they’re already spoken for, and they’re not in Houston,” Bertocco said. “I don’t see an LNG facility (being built) in the ship channel.”
The density of Houston-area petrochemical infrastructure would make building LNG trains there “tremendously difficult,” said Campbell Faulkner, senior vice president and chief data analyst for OTC Global Holdings LP, an over-the-counter broker in energy commodities. The electric power needs alone of such facilities would strain the Houston-area power grid to a point where it makes more sense to build elsewhere on the Gulf Coast, Faulkner said.
If construction of those facilities did take place in or near the city, it would create more jobs and trade for Houston, much like the crude oil complex that has risen in the city since oil exports were legalized in 2014, Faulkner said. Even so, the Bayou City still doesn’t miss out on much by not being the infrastructure center of the spot market, Faulkner said. Houston houses the central offices of many of the most prominent players in the LNG export game, from Cheniere and Kinder Morgan to Tellurian Inc. (NYSE American: TELL) and Liquefied Natural Gas Ltd.
“The bulk of the operations and marketing staff will still be based in Houston,” Faulkner said. “Houston benefits from the growing physical infrastructure via sourcing of the materials and labor skills for the wider area.”
Kinder Morgan is building both of its LNG export projects well away from Houston — one is in Mississippi, the other is on the Atlantic Coast in Georgia. That’s not because of issues in Houston; it’s because the company already had assets established in both of those areas, Varagona said.
“Basically, we were already there, so it didn’t take a whole lot of thought,” Varagona said.
There are still other ways for Houston to take part in the LNG infrastructure network. LNG export facilities have a hard time ramping up or down production, so a consistent supply is an important part of operations, Varagona said. Storage facilities can help a lot in that, and some of the largest storage companies in the world have footprints in or near Houston, Bertocco said.
Kinder Morgan, which has a broad network of natural gas pipelines, has already signed contracts with some storage companies to supply gas pipeline infrastructure, Baragona said.
Growing regional spot market
The Gulf Coast is already well on its way to becoming an LNG spot market hub, Bertocco said. There are already a multitude of export facilities either under construction or looking for regulatory approval, so the question is how many of those move forward into completion, Bertocco said.
“With the number of projects on paper, those would generate potentially a significant oversupply of LNG, and therefor a significant spot availability,” Bertocco said.
And there is already spot activity on the Gulf Coast. London-based S&P Global Platts already has a price assessment for LNG on the U.S. Gulf Coast. While that is usually based on logistical costs to move LNG to a more liquid hub in Asia or Europe, there is infrequent trading in the Gulf Coast spot market that can affect the assessment, said Francis Brown, editorial director at Platts.
While Gulf Coast spot trading is sparse right now, it is growing and will probably continue to do so as more export facilities come online, Varagona said.
The existence of a growing spot market doesn’t change much for Kinder Morgan, Varagona said. That’s because the midstream company would want to have nearly all of its terminal capacity under contract before it moves forward with a project, he said.
“In order for us to go forward with the development, we would want almost 100 percent subscribed,” Varagona said. “In the grand scheme of things, it doesn’t affect FID. We’re not in the business of taking commodity risk.”
A thriving spot market could help the company track pricing, though, Varagona said.
As the global markets develop, it’s conceivable that the now-dominant demand hub in Asia would start facing more intense competition from demand in Europe and elsewhere, said Brown. And as demand hubs compete, supply hubs like the one blooming in the Gulf Coast become more important, he said.
Battle of the contracts reflects Houston’s growing status as an energy trading hotspot
Gregory Meyer in New York and David Sheppard in London yesterday
The world’s two biggest energy exchanges have taken their fierce rivalry to Houston, Texas in pursuit of business linked to the millions of barrels of shale oil arriving in the city every day.
Last last year, exchange operators CME Group and Intercontinental Exchange introduced duelling futures contracts that track the price of West Texas Intermediate crude as delivered at the coastal city.
The battle between the contracts — dubbed WTI Houston and Permian WTI — is a reflection of Houston’s growing status as an energy trading hotspot, as US oil production breaks records, Texas refineries add capacity and exports of crude soar.
At the moment, oil markets in the Gulf coast region lack widely traded derivatives contracts, which is a potential problem for companies trying to hedge risks. Contracts culminating in physical delivery at Houston would be a purpose-built tool which reflect the city’s emergence as a gateway between domestic and international markets, exchange executives say.
At stake is the chance to own the next major oil contract that some believe could be a major money-spinner for the two exchanges. CME of Chicago and ICE of Atlanta have earned billions of dollars in revenues since establishing the world’s two main oil benchmarks — WTI and North Sea Brent, respectively — three decades ago.
“This is not our average contract launch,” says Jeff Barbuto, global head of oil marketing at ICE. “US barrels are going to become more and more relevant to global oil flows.”
Exchanges owned by ICE and CME have competed in crude oil futures since the 1980s. ICE’s Brent crude benchmark is based on North Sea supply. CME’s light, sweet WTI benchmark is delivered to the storage hub of Cushing, Oklahoma — a small town about 500 miles north of Houston.
At times, the price of oil at Houston disconnects from prices in the North Sea, Cushing or both, suggesting the new contracts could be useful to companies selling oil there. Volumes have picked up in recent weeks.
“We are following the lead of the commercial customers that are telling us both with their investments and with their marketing where they need risk management,” says Peter Keavey, CME’s global head of energy.
The contracts present somewhat different opportunities for each exchange group. At CME, Houston trading complements its flagship oil contract. “The key benchmark is still WTI-Cushing,” Mr Keavey says.
For ICE, Houston is a potential beachhead in the US crude oil market, where its main contract is a “lookalike” that tracks the price of CME’s WTI. “ICE would love this to be a giant contract,” says Campbell Faulkner, chief data analyst at OTC Global Holdings, a Houston-based energy broker.
Academic research has shown that new futures contracts are likely to fail unless they are substantially better at reducing risks than existing futures contracts, says Hilary Till, principal at Premia Research in Chicago.
She cites the economist Holbrook Working’s conclusion that commercial traders would choose an imperfectly tailored futures contract — such as WTI-Cushing to manage risks at Houston — if it protected them against extreme losses, and if the cost of entering and exiting the market were small.
CME’s WTI-Cushing and ICE Brent are already deeply traded markets with daily volumes hundreds of times higher than the Houston contracts.
“The history of well-designed futures contracts not gaining traction is very long,” Ms Till says.
The new CME contract is delivered at Houston terminals owned by Enterprise Products Partners. Its rules require oil with gravity, or density, that measures within a narrow band of 40-44 “degrees”. The oil may contain no more than 0.275 per cent sulphur content and four parts per million of the metals nickel and vanadium.
ICE’s contract is delivered at Houston terminals owned by Magellan Midstream Partners, whose specifications allow oil with a wider gravity band of 36-44 degrees and a sulphur cap of 0.45 per cent.
“We have a tighter spec,” CME’s Mr Keavey says.
ICE, however, has been publishing monthly average readings of gravity, sulphur and metals to demonstrate the consistent quality of the WTI underpinning its contract. The unblended crude is tapped from pipelines running straight from oilfields in west Texas’s Permian Basin, according to the exchange company.
“We’re really betting that quality control all the way from the wellhead to the water is going to make the difference,” Mr Barbuto says.
Dennis Sutton, executive director of the Crude Oil Quality Association, an industry group, says ICE’s reports “could lead me to believe that it is better quality,” but he noted that the figures were averages which could mask day-to-day variation.
“If I had crude buyers asking me which ones should I buy and how much should I pay, I’d need to run the numbers through more sophisticated linear program models to come up with the answers,” says Mr Sutton, a former Marathon Petroleum executive.
The push to establish a Gulf coast crude oil price standard comes as S&P Global Platts, whose North Sea price assessments form part of the physical trading market, is examining whether to incorporate other light, sweet oil streams into its daily snapshots of the north-west European market.
This could include the light US crude oil captured by the Houston contracts, with Platts noting it has seen “regular trade flow” from the region. The Platts Dated Brent benchmark is intrinsically linked to ICE Brent futures, which together help form reference prices for the majority of the world’s seaborne crude trade.