As LNG trading volumes and value rise, traders increasingly face the need to integrate it better into their core ETRM landscape. Higher visibility of the marк-to-market and mark-to-intent, as well as diversion decisions impact on valuation and cost, are just parts of the reasons the real-world needs to be better integrated into the software.
To make things more fun, LNG combines features of both flow and bulk commodities throughout its lifecycle, so any integration needs to take this into account and reconcile the complexities of both. Capturing the unload-to-regasification processes can be a particularly complex scenario, although there is an increasing move toward bundle pricing. This, however, is compensated by the market need for flexibility in service offerings and enabling services like transhipment, storage, and reloading. Reloads have become increasingly popular in the last years and a study on gas market upgrading and modernization presented in the Madrid Forum 2019 shows the key terminal flexibility factors that make them attractive (Van Nuffel, L. 2019. Study on gas market upgrading and modernisation – Regulatory framework for LNG terminals Preliminary findings, p. 4. Madrid Forum. Trinomics).
Overall, integration into an ETRM landscape poses several key challenges:
- Capturing the cost complexity of the unload to regasification steps – there is s different pricing logic between terminals and between the different steps in the process – e.g. unloading may be per unit, but storage per the maximum used capacity in a day.
- Modelling correctly the mark to intent value and the implied optionality in a market situation where Europe competes with Asia for LNG shipments. This is not a new or an LNG specific problem, but historically it has been under-addressed.
- Modelling correctly the state transitions from a liquid into a gas with the accompanying losses and lead time to get the gas into the pipelines. UoM and currency conversions are among the known challenges, but some gas systems have the additional complexity of an implied MWh to cm conversion resulting in MWh GCV and MWh NCV measures and prices which provides a proper headache while comprehending.
The list is not exhaustive but contains in our view the key deal breakers when modelling LNG and integrating it with the more special-purpose systems around it.
To address those, market players need a reliable implementation and integration partner. ROITI aspires to be such and after we have solved gas in Europe, we are looking for a good complex LNG problem to solve.