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LNG contract delayed as players focus on Brexit

ESSEN, Germany/SINGAPORE, (Reuters) - European energy bourse EEX Group is delaying to the second quarter a major expansion into Asia involving the launch of a liquefied natural gas (LNG) contract that it had initially planned for this month, its Asia head said.

Would-be participants active in European gas fear the effects of a disorderly Brexit and need to prepare for this scenario first, Egbert Laege, a member of EEX’s management board and chief executive of EEX Asia, told Reuters.

“The contract will now be launched in the second quarter of 2019,” he said on the sidelines of the E-World of Energy industry fair in Essen, Germany.

“Brexit is binding many resources in each of our clients’ organisations as well as with the clearing banks, and we can all understand that it has the highest priority that there is seamless cooperation on our European energy markets,” he added.

EEX, the world’s biggest power exchange, hopes the contract will attract interest from major LNG participants that have entered the Asian physical spot market in recent years as it widens its global presence in other products.

The move will pit the German-based exchange, owned by Deutsche Boerse, against local players in the world’s fastest-growing energy region as it looks to build a global presence.

“LNG is the perfect platform to move from regional gas to global gas,” Laege said.

“It is very natural that we take our product offering to the region where the demand is and where the clients are,” he added.

The EEX is the first exchange to try to become a globally integrated power, natural gas, dry-bulk, freight and emissions permit trading exchange.

Its LNG products will be settled against the Platts daily JKM assessment published by S&P Global Platts, which has come to dominate the booming physical LNG spot market in Asia.

Together with its gas hub prices in Europe, EEX says traders will be able to hedge their LNG cargoes and optimise their energy portfolio up to two years in advance.

EEX hopes this will attract interest from major LNG market participants who have entered the Asian physical spot market in recent years, so far mostly European-based, and that this will spread more to local players.

EEX also plans to start offering wholesale power products in Japan, although this was more medium term. It also plans iron ore and freight futures. “There is a high level of overlap of clients interested in all these products,” Laege said.

DIFFICULT MARKETS

EEX’s Asian expansion, flagged by Deutsche Boerse last year,

will put EEX into competition with incumbents in a market where a number of contacts have failed in recent years due to a lack of support.

“Many have come and few have succeeded in this area. What is required is a set of committed ... market makers across products, who are given a natural position to trade from the start,” said Andrew Koscharsky, director for energy products at commodity trading house RCMA Group in Singapore.

The Singapore Exchange (SGX) launched Asian LNG futures in 2015, but trading has been light, while the Japan Electric Power Exchange’s (JEPX) wholesale electricity futures have attracted only moderate interest since launching in 2016.

In freight and iron ore, EEX will have to compete with SGX and China’s Dalian Commodity Exchange (DCE).

To succeed, traders say the German group needs to open itself to smaller participants as well as major companies that can act as market makers by providing constant liquidity.

China’s exchanges, such as Dalian and the Shanghai International Energy Exchange, which last year launched crude oil futures, have been driven by local traders.

To attract liquidity, EEX says it will exploit the cross-margining and netting opportunities that exist within its contract range, cutting down payments to cover open liabilities.

EEX currently has participants from around 30 countries. The bourse bought Czech power rival PXE in 2016 and U.S. power and gas rival Nodal in 2017. (Reporting by Vera Eckert and Henning Gloystein; Editing by Dale Hudson and David Evans)


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