After several years of market turbulence driven predominantly by Russia’s invasion of Ukraine and a post-pandemic boost in economic activity, natural gas markets have settled somewhat over the past 18 months. By mid-2023, gas prices had fallen significantly from the record highs of the previous year. Average spot prices at US benchmark Henry Hub, for example, fell 34% between January and June.
Amid the reduced volatility and lower prices globally, natural gas hedging activity declined. However, the turmoil and disruption of the past few years have left Macquarie Group’s clients with a “heightened awareness” of the liquidity and funding risks within their portfolios, according to Tim Bourn, co-head of North America power, gas and emissions, and global head of LNG at Macquarie.
Cindy Khek
As such Cindy Khek, co-head of North America power, gas and emissions, says Macquarie’s commodities and global markets (CGM) business has focused on extending credit and providing unmargined structures that have helped clients to manage these risks without having to pay the price of unused funding capacity. “With lower gas prices and volatility globally due to supply-chain normalisation and fewer weather-driven disruptions, clients are not facing the immediate cost and liquidity pressures of recent years,” Khek says. “However, they must now better position their businesses to be able to handle the potential for these types of disruptions to reoccur and do so in the most efficient ways possible.”
Among Macquarie’s natural gas clients around the world, this global market shift has generated more interest in physical transportation and storage solutions, as well as for credit and funding. “This allows us to use our financial capabilities and structuring expertise to extend margin and funding-efficient structures,” Khek adds.
Macquarie’s US and Canadian gas businesses operate out of offices in Houston, Minneapolis and Calgary, in addition to a Mexican gas business based in Mexico City. It is also present across all major European gas markets via teams in London and Paris, as well as having an established marketing and trading team in Sydney that covers the Australian gas market.
Macquarie’s international presence has been particularly useful in recent years as the European team has seen clients diversify away from the Dutch natural gas benchmark Title Transfer Facility (TTF). As Russian pipeline gas flows reduced, the lack of infrastructure to deliver into this benchmark created significant price deviations across the continent. Macquarie’s ability to provide hedging and liquidity products across a number of different countries and markets where clients have their deliveries and gas flows have been critical for adequate risk management in this environment.
“Our expansive platform allows our client base to better manage their risks geographically and limit the risks associated with further market dislocation,” says Andrew Prough, Macquarie’s commodity markets and finance Europe, Middle East and Africa (Emea) chief operating officer. “We are also seeing increasing interest in our Energy Market Access platform, which allows us to
Andrew Prough, Macquarie
extend margin-free or capped trading lines to counterparties looking for market access across European energy markets.” This platform, which is separate from the Emea gas team’s primary client business, allows customers with regular liquidity and credit needs to more directly manage their trading needs within pre-defined margin and limit parameters.
In the global liquefied natural gas (LNG) market, Macquarie has seen growth in cargo financing products that are more common in other commodity markets such as oil and products. Due to price volatility over the past few years, these products have become increasingly relevant in the LNG space. “These products have helped us provide both developers and end-users with efficient working capital solutions that allow them to limit funding costs and better deploy their funding liquidity elsewhere,” says Erik Petersson, co-head of the commodities division at Macquarie.
Clients face the challenge of getting gas to market due to a combination of factors including pace of production, weather events and market volatility. Through hundreds of individual interactions each day, Macquarie’s North America power, gas and emissions business provides market liquidity, evaluates transportation and storage dynamics, and identifies production and consumption trends. This information feeds into the business’s fundamental analysis and provides a view on supply and demand.
Key to Macquarie’s CGM platform is the team’s deep expertise and physical presence, which allows the organisation to manage client exposure while still facilitating transport from production to consumption. “Macquarie is unique in its breadth of both physical logistics and financial capabilities, enabling us to help market participants manage their risks and unlock opportunities,” Bourn adds.
