The Singapore Exchange Ltd aims to expand in the energy sector and is considering creating a global market in spot liquefied natural gas (LNG) trading as well as an Asian benchmark for crude oil, its president said.
Its push in the sector gained momentum after SGX’s purchase of a majority stake late last year in Energy Market Company (EMC), which provides spot prices for electricity in Singapore.
“We launched an electricity futures contract based on that and so we would look to develop other energy products,” SGX President Muthukrishnan Ramaswami said.
“We’d look at things that would be interesting in an Asian context, where business is moving from what used to be long-term contracts to more of a spot market,” he told reporters at the International Derivatives Expo in London.
The move away from long-term contracts in iron ore allowed the SGX to create a very successful business in that commodity, where volumes of derivatives traded on the exchange have roughly doubled in volume each year since their launch in 2009, reaching around 550 million tonnes last year.
“Now LNG is going through that transition because there’s more sea-borne trade. There are many storage facilities coming up in Singapore and the rest of Asia, so there is a market that is developing,” Ramaswami said.
SGX hopes to use EMC as a platform for its expansion in other energy products, he added.
“That same company could very easily run a spot market for LNG or a spot market for other energy markets.”
There was no specific time frame for going into the LNG market, but it was not “imminent” since it can take years to develop new physical markets, Ramaswami said.
There was also a hope to create an Asian benchmark in crude oil, adding to the two existing benchmarks — West Texas Intermediate (WTI) for the United States and Brent in Europe — but this would be a challenge.
“We would also look for an Asian benchmark in oil. Today the Asian user only has WTI or Brent,” he said.
“That has been a quest for a long time, not just for us but other exchanges in Asia. The liquidity tends to be in the major contracts, so you don’t end up being able to easily develop something like that.”
Besides commodities, SGX’s products include equities and financial derivatives such as interest rate swaps. The commodities sector includes iron ore, coking coal, freight, rubber and gold.
Source: Reuters (Reporting by Eric Onstad; editing by Susan Thomas)