price reporting in a changing marketplace euan craik, ceo americas
TRANSCRIPT
Price reporting in a changing marketplace
Euan Craik, CEO Americas
Outline
• Who is Argus?
• Why is Argus growing so fast?– Politics & price-reporting agencies
• How does Argus report a market?
• What’s new?
Who is Argus?
• London• Houston • Washington• New York• Portland, OR• Calgary• Santiago• Singapore• Tokyo• Beijing• Sydney• Dubai• Moscow• Kiev• Astana
• All energy commodities, all energy markets
• Over 275 employees • Over 60 publications• Founded in 1970• US crude & products since 1986• Owned by family of founder &
employees• UK limited company
“The up and coming vendor”— major investment bank
Energy price reporting agencies
• Global/universal• Platts• Argus
• Regional• Opis• RIM
• Specialist• ICIS• McCloskey• Natural Gas Intelligence
• Exchanges• ICE• Nymex
What does Argus do?
• Shed light on non-transparent markets
• Market data vendor
What has changed? (Why has Argus grown?)
• Politics: A raft of issues have impacted on the business of price-reporting– Sarbanes-Oxley, FERC price reporting
guidelines, CFTC and FERC investigations
• Price-reporting agencies have changed methodologies in response
• Technology– Easier to gather comprehensive transactional
data
The challenge of regulation
• Post-Enron, regulatory bodies on warpath against market manipulation:– CFTC: Prosecutes false reporting to index publishers– FTC: Prosecutes distribution of knowingly misleading information
or intentional omissions
• Efforts redoubled since $147 oil, financial crisis and election of Obama
• How to report prices in opaque markets in a way that is transparent and replicable?
• How to guard against manipulation?
Compliance
• Our clients care about compliance, about staying out of trouble, so we do too
• Ethics policy
• Enforced editorial policies
• Monitoring and audit controls
• Compliance officer
• Confidentiality
Methodology wars
• Intelligent assessments
• Transaction-based prices:– Market-on-close– All day transactions
• Volume-weighted average• High, low, mean
Case Study: Argus crude
Volume-weighted indicesDate Crude
Trade Month Basis
Differential Price ($/bl)
Volume (b/d)
(Price)*(Volume)/Total Volume
19-Oct-09Mars November November WTI -3.80 2,000 -0.264519-Oct-09Mars November November WTI -3.75 1,000 -0.130519-Oct-09Mars November November WTI -3.75 1,000 -0.130519-Oct-09Mars November November WTI -3.75 1,000 -0.130519-Oct-09Mars November November WTI -3.75 1,000 -0.130519-Oct-09Mars November November WTI -3.75 1,000 -0.130519-Oct-09Mars November November WTI -3.75 2,000 -0.261019-Oct-09Mars November November WTI -3.75 2,000 -0.261019-Oct-09Mars November November WTI -3.75 2,000 -0.261019-Oct-09Mars November November WTI -3.70 1,000 -0.128819-Oct-09Mars November November WTI -3.70 1,000 -0.128819-Oct-09Mars November November WTI -3.70 1,000 -0.128819-Oct-09Mars November November WTI -3.70 3,733 -0.4807
Total Volume: 19,733
Argus Mars Differential: -3.74November WTI Formula Basis: 79.61
Argus Mars Price: 75.87
How does Argus get the deals?
• Refiners, producers, traders submit lists of deals including price, volume, counterparty
• Brokers cooperate on the request of their customers.
• Companies cooperate because they need a total market index that is reputable and reflects actual trade– Even though voluntary, Argus gets about 95% of all
transactions in crude
How does Argus ensure the accuracy of the deals?
• Deals are analyzed, scrubbed, and confirmed • Argus reserves the right to throw out deals if
they cannot be confirmed, or seem anomalous – Escalating review process
• Argus compliance program– Written procedures and regular internal audit
Argus includes the entire market
• Argus is a total market index. All bona fide deals done on all platforms, and all done in the open market – Platts window– HoustonStreet
• Cannot game Argus by trading on one system to the exclusion of another
What’s new?
Argus new developments
• The Argus Sour Crude Index (ASCI™)
• US clean products
• Jet fuel
• Canadian crude
• European products and biofuels
• API coal indices
• North American gas and power
• Biomass
Argus Sour Crude Index (ASCI™)
• Adoption by Saudi Aramco and Kuwait for all exports to the US. Iraq expected to follow
• Prompted by dislocation between inland light sweet WTI and sour crude at the US Gulf Coast
• ASCI has potential to be used for broad sweet/sour financial hedging in the Americas
• Interest in Latin America and as far away as China
ASCI vs WTI
US clean products• East of the Rockies, refiners representing about
half the market are moving all internal and external pricing onto Argus for gasoline, diesel, heating oil and jet fuel
• A second-tier of passive firms is consolidating the shift
• New wave of sales to smaller marketers and distributors
• Why the change? Methodology: – entire day of deals done, at differentials to the Nymex
settlement
Jet fuel• Jet fuel is a huge market for PRAs, because no
refiners operate airlines • Jet fuel is globally negotiated, so change in one
region affects another• Leading European airlines pushing to change
contracts to Argus globally • US refiners continue to push US airlines to use
Argus with some success• Spot trade in the US is frequently transacted at
Argus prices
Canadian crude
• Canada is the largest exporter of crude to the US
• Crude market indexation is in disarray with competing exchange and brokerage indices
• With support from key players, Argus is emerging as an indexation solution
European products and biofuels• Argus has long been the benchmark for gasoline
swaps in northwest Europe• Adoption of Argus Eurobob (ethanol blendstock)
to replace unleaded barges will broaden and deepen usage in Europe, Russia and Africa
• Argus the leading benchmark for biodiesel swaps in Europe
Coal• API 2 (fob northwest Europe) is the benchmark
for most Atlantic Basin trade • API 4 (fob South Africa) is benchmark for coal
moving east to Asia• API 6 (for Australia) recently launched• US domestic coal
North American Natural Gas & Power
• Argus strong in European gas & power• Major gap in North American portfolio• September ’09
– Launched natural gas service– Acquired power market service
• Ferc compliant in both markets• Major sales and marketing offensive
What does the future hold?
• Filling gaps– Asia-Pacific– Latin America
• Beyond petroleum– Natural gas– Coal– Renewables
• Beyond energy? – Metals, agriculture, chemicals
• Beyond the spot market – Forward curves?
