1. Tighter regulations in the US and Europe are impacting commodities and energy trading. How are your clients tightening their trading compliance functions and what are some challenges involved in maintaining and providing coverage for new regulations?
Increasingly, companies are under mounting pressure to report data on a timely basis to regulators and increase transparency and auditability. The idea of depending on spreadsheets to manage business critical operations is now recognized by academics, regulators and business leaders as high-risk and companies are now seeking software solutions to help them better manage their transaction lifecycle management. This is not only important to regulators but also to large institutional investors who are increasingly investing and updating their trading and risk management systems.
More and more of our customers are introducing tighter controls through technology in order to improve transparency and reporting. In Asia, there is still a bit of 'watching' as some of these regulations are slowly starting to impact the region and organizations are only beginning to evaluate how to implement tighter levels of compliance and reporting.
2. Natural gas discoveries and the growth of LNG infrastructure worldwide have led to a sense of optimism about energy abundance and dampening prices. What's your medium-term view on global LNG prices and how is volatility and uncertainty in the natural gas landscape impacting gas market participants?
The evolution of the shale gas market in the United States and wider global LNG developments will hugely impact macroeconomics policies and commodity trading in the near and long-term. The advances in gas extraction and increasing economic viability of LNG is making the concept of having a secure, cleaner, more sustainable mixed energy portfolio more of a reality for all countries.
Regarding volatility, we are already seeing demand in the LNG market for hub-linked pricing contracts as opposed to oil-linked indexes and would expect to see that trend increase going forward. As LNG demands increase in Asia, the next logical step would be the development of an Asian market-linked index. The potential opening of the Japanese energy market would be a big step towards achieving this.
3. Emissions trading schemes have been implemented at local levels worldwide and China recently launched its pilot regional emissions trading scheme. What are your views on the future of emissions trading and how can technology help countries to reduce their carbon footprint?
There have been a number of failures in emissions trading schemes, most notably in Europe and Australia. Governments and regulators should try to learn from these errors in order to ensure that any future schemes are successful. In the short-term, if implemented correctly, emissions trading is still the most logical step to incentivize companies. In the long-term, technology advancements ultimately hold the key in reducing the global carbon footprint.
Higher levels of emissions contracts trading are expected. As the global economy continues to grow in the coming years and demand for fossil fuels grows, we expect there to be greater volatility in the emissions markets. Prices have been low due to low global demand.
4.The energy trading industry in Asia is growing but is still in a nascent stage compared to the West. How can its growth be encouraged? What are the advantages of having more competitive energy markets for Asian countries, given the region's increasing energy demand.
Deregulation of energy markets has created huge economic benefits for some countries as well as a more diverse, cost-effective and competitive energy supply. Countries considering energy deregulation should use lessons learned from early adaptors.
A shortage of supply as the global economy puts pressure on stock, continuation of market deregulation, greater competition coming into Asia and tighter compliance from regulators.
5. What do you see as the top three developments that will influence energy markets and energy trading in the next five years? How are energy companies changing the way they do business in light of new energy horizons?
The evolution of unconventional gas extraction and the potential for other countries to adopt a US-style approach could have a huge impact on supply. How quickly and successfully other countries will be at this level remains to be seen. Dense populations at extraction sites and public perception of environmental impact will be some of the key factors governments will have to face.
The continued deregulation of energy markets will also create greater competition and market opportunities for companies across the value chain.
Also, as we start to have more fundamental physical and financial trading in Asia, pricing of products will start to move creating greater volatility and availability of the traded products.