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Breanne Dougherty: Good morning and welcome to this episode of EnergyCents. The S&P Global market podcast where we discuss all things at the intersection of energy and finance. I am Breanne Dougherty and I’m here as always with the excellent Hill Vaden. Thank you for being here, Hill. How are you today?

Hill Vaden: I’m doing well, Breanne. How are you?

Breanne Dougherty: I’m pretty good. So – well, you know what, we’re not going to go into a bunch of the excitement that’s been happening over the last week, particularly here in the US. Plenty of news coverage on that. So, let’s just, let’s just…

Hill Vaden: It’s been a big week.

Breanne Dougherty: Yes. It’s been a big week. There’s been a lot. I’m not going to head down that rabbit hole because I feel like I’ve been talking about it for a lot of days and watching a whole bunch of news. So, let’s be clear of that. So yesterday, I read an article. I thought you’d find this interesting. I read an article and actually for our guests who I’m going to tease that our guests might be related to this in some way or another but we’re going to say who they are in a second. I’m all about the teases.

I read an article – a British man, it was a British man apparently, who is offering a quarter of, I think it ends up being like $7 million something like that, that he’s offering up to the local dump because he says that he has on a jump drive, a certain amount of Bitcoin that would be valued that he estimates to be valued about $273 million. So, he’s offering about a quarter of the value of it for the local dump to let him go there and try to find it. So, I mean, obviously Bitcoin, the value of Bitcoin has exploded tremendously. And this guy, he mined it a long time ago and apparently was in some sort of commercial account or some sort of whatever he had it in there. There’s been no discussion about where it came from, which is I guess part of the, part of the…

Hill Vaden: Did he identified the dump?

Breanne Dougherty: So, he has identified the dump. It’s his local – I think it’s a smaller spa -- I can’t remember which town it is, but in the UK. And he has identified it and he’s approached them. And I think, when I started – it started skimming. I was trying to read more background on it. I think he’s approached someone before a few years ago and they said no. And now he’s up the ante and said here’s a certain amount of money. And he apparently – I think he’s trying to use a, sort of an algorithm to guess about how he could maybe chart out the dump and figure out the best places to start digging in order to find this jump drive because he wants it.

And so anyway, so then I – speaking of rabbit hole, so of course I’m reading the article and then I read the next article about some guy who took his wife out for a really nice dinner or something, at a certain point where Bitcoin because he made this certain amount of money on Bitcoin. So, they splurge, started really expensive weekend and now he’s like that would be valued at x number of dollars. If we just left there we’d be able to be retired and buy a house or whatever the situation was. But – so anyways, Bitcoin, how do you feel about, or have you been reading any particularly dramatic stories around the rise of Bitcoin?

Hill Vaden: Well, I’ve got one but first on this rich guy, I can’t help that there was a Simpsons’ episode many years ago when Mr. Burns, it basically employed Homer to do pranks for his own amusement. And he would have – it ends with Mr. Burn throwing fish guts all over the people of Springfield during a parade.

Breanne Dougherty: With the help of Homer Simpson.

Hill Vaden: Well, Homer eventually finds his, I guess, finds his ego over his pride and backs out saying I’m humiliating myself for Mr. Burns’ amusement. And so, I’m quite suspicious at this guy in the UK because he’s identified the dump. He’s just trying to get a bunch of us to go and climb through the trash looking for this thumb drive and that there’s no thumb drive with millions of dollars.

Breanne Dougherty: So, this is the question. Like, at what point would you say, yeah, I’ll head to the local dumping and do a couple hours of digging?

Hill Vaden: Well, I mean it probably depends on the person. I’m not going to do it but I could see some Mr. Burns kind…

Breanne Dougherty: Contract it out to your children.

Hill Vaden: Right.

Breanne Dougherty: He got small hands.

Hill Vaden: Yes. It is a good example of how crazy things got with Bitcoin. And I saw this yesterday in a paper that I was reading that there’s a challenge. When, you know, when social media people take pictures of themselves and do weird things to go viral. And the kind of the – this article was about somebody who had apparently time Bitcoin pretty well, said that he made his money, got out, it was causing him too much emotional stress because it could go to zero, it could go to a million. He got enough and it was time for him to pay his taxes and get out. And the signal to him was Lindsay Lohan. I think that she is doing some recording saying buy Bitcoin, blah, blah, whatever it is. I can’t remember the exact recording of it but she’s on Twitter trying to get people to get into Bitcoin and that was his tell that too many…

Breanne Dougherty: That’s going to be.

Hill Vaden: Sophisticated retailers have gotten into the game.

Breanne Dougherty: I think that’s a fairly – I think that’s a decent tell. I feel like – yes, I can get behind that logic that the moment you start seeing the Lindsay Lohans of the world. No offensive to Lindsay Lohan, maybe she’s got phenomenal financial document and I’m not quite sure what her situation is, but I think that’s fair. I can see that. Concern starts mounting when.

Hill Vaden: Yes. So, he was comfortable getting out and if Bitcoin goes to a million, he would have his money elsewhere, or he’d be in the dump looking for this guy’s thumb drive.

Breanne Dougherty: Well, this is it, or he’s going to take a part-time job digging through a dump somewhere. I mean, when you think about it though it’s completely easy. I can see how that happens, because think of the number of times since I’d say in the last 15 years. If I was to dig through some of my closets you find random USB drives everywhere. Right? I mean, I guess back in the day, that’s what you were using them when you were – get, when every single time you got a new computer or whatever and you’re putting things on the USB drives just because you didn’t have the storage that you have now, for instance, on the computer.

And so, I get it that he, apparently, he started digging through his stuff looking for it and then he realized, don’t know, it’s gone to the dump. I mean, I think it’s pretty fruitless endeavor. I’m pretty sure it’s going to be hard to find in a dump this number of years later. If you told me it was last month, maybe. You get me out there digging. But you’re telling me, it’s years later, I mean I just think that’s an impossible feed. I mean, something…

Hill Vaden: Well, it does kind of…

Breanne Dougherty: …or back, just picked it up and swallowed it or something, like, you don’t know.

Hill Vaden: Well, in terms of treasure hunting it kind of sucks, right? Then there’s all these great stories of pirate’s treasure, these big chest of gold, chest of copper pot or whatever from the goodies where you’re finding like crowns and all sorts of things. There’s a lot of excitement in the lore in that type of treasure hunting, looking for a thump drive in a pile of trash is…

Breanne Dougherty: Not so pretty.

Hill Vaden: Not exactly where I would go. Because…

Breanne Dougherty: That’s sound funny. You’re probably going to find several thumb drives. So, it’s going to be, you can find one try to test it. Because he also, he mentioned in the article or he’s mentioned in the article that the expectation would be is that you’d have to then take it to specialist to try to recover it, right, that it’s not that USB drive. You just plug to your computer and you’re going to see it. So, anyways, if that’s what’s…

Hill Vaden: There’s probably people out there sweating bullets who threw away their thumb drives with videos or other things that they don’t want found in that…

Breanne Dougherty: You’re right. That’s a very good point. There’s going to be a bunch of people standing by the dump saying like, don’t touch that one. Don’t touch that one.

Hill Vaden: Like, Kanye and Kim.

Breanne Dougherty: Yes. Well, it was actually true that this actually relates to our guests in two capacities because we’re going to be talking about the global markets, the European gas market and more importantly the Asia market. So, we do have some of our guests from across the pond, which is great. We’ve got Simon Wood and James Taverner with us. And we’re very lucky to have them. They’re focused on global gas and LNG, and two of our experts within the space, which is great to have you. Thank you both for joining us.

Simon Wood: Glad to be here.

Breanne Dougherty: And the other relation to Bitcoin is it was reported this week that for the first time ever LNG cargo prices soared higher than Bitcoin, faster, higher than Bitcoin. Which brings us to our topic. What happened? So, what’s happening in the, you know, and let’s get into the dynamics of this. Is it specifically the Asia LNG market that’s happening? How does this relate to the global gas market? Maybe we can turn to James first and he can give us a little bit of a rundown on what exactly has been happening and why LNG prices in Asia skyrocketed and cargo prices skyrocketed above Bitcoin?

James Taverner: Sure. Yes. Thanks very much for having us today. Very, very excited to talk about one of our favorite subjects here. And as you say stock prices Asian LNG have increased faster than even Bitcoin. So just last week, we heard of a cargo trading hands in Asia for around $39 per MMBTU. Now to put that in context, it’s easy to forget now. If we go back to the start of 2020, we were in a global surplus LNG. At the end of April 2020, Asian stock prices were dipping below $2 per MMBTU. So, that was all time record low. So, just in a period of few months to get from there to an all-time high, there’s been a lot of things that have happened all at once to kind of create this market tightening out in Asia.

Hill Vaden: And why…

Breanne Dougherty: And is it – yes, is it fundamentals? Was there a huge unexpected disruption? I mean, something’s got to trigger that.

James Taverner: The answer is yes and yes. And what happened really to tighten things so quickly, there’s three things you can point to really. Number one is on the demand side. Asian LNG demand recovered very quickly, in fact faster than expected after the pandemic. And on top of that, you had cold weather as well. And number two, this all happened at the same time as supply outages. There was unexpected outages that a number of liquefaction projects around the world. It took unusually high volume of supply out of the market at the same time. On the third thing on top of all of this was constraints, shipping constraints. So, there was a shortage of available LNG carriers to get that gas over to Asia when it was needed, as well as delays in pinch points like at the Panama Canal.

Breanne Dougherty: So, and maybe I’ll turn to Simon a little bit on this, when we saw this price spike, we know that over the last year, and James mentioned last year obviously with the record low, Asia LNG prices that, part of it was there’s a big convergence within Asia Europe and Henry Hub last summer and we talked a little bit about that back then. So, has this Asia price spike been able to pull up the whole complex? I mean, are we -- Europe, we haven’t got the same news flow around Europe.

Simon Wood: Yes. I think what this shows is kind of the nascent nature of the Asian gas market verses certainly Europe and the US. Europe did see a tightening of conditions. A dropping LNG send outs and deliveries, of course, tightened the European market. But Europe has a lot more mechanisms of flexibility than Asia. So, we were able to see the Russians by Gazprom, increase pipeline flows, you saw Norwegian flows increase, and of course we saw significant withdrawals from storage. So, Europe has a lot more in the tank, so to speak, to balance should the LNG market tighten. So, European gas prices did increase and then also increased on the back of higher emissions prices, that’s carbon prices in Europe as well because cold gas switching is another important element of the European gas complex. So, there’s a lot more going on to kind of keep a lid on prices in Europe than there is in Asia.

Hill Vaden: Is the absence…

Breanne Dougherty: But I think – sorry, go ahead.

Hill Vaden: …of storage, I mean, it seems to not being too close to this. But the absence of storage with the relative absence of storage in Asia puts it at a -- in the sense of huge disadvantage really as the global gas world connects itself relative to other parts of the world. Is that some of what happened here?

Simon Wood: If certainly comparing it to Europe, I said yes. In Europe when prices do spike the curve goes into backwardation and storage can withdraw. But also, you’ve got the element of pipeline gas. And quite often you’ll see pipeline gas play the shape of the curve as well. So, you’ll see lower deliveries when the markets in contango because of delayed delivery into a later quarter or year. When it’s in backwardation, you’ll try and bring a production forward. That’s certainly the case with Norwegian flows. So, it’s not just about storage is about the flexibility and pipeline. And the largest gas markets for LNG in Asia are no South Korea and Japan, whether almost entirely reliant on LNG. And there’s limited storage but also limited pipeline infrastructure as well.

Hill Vaden: So, what do I -- I mean it’s just, how do I resolve that if I’m Asia, I mean because the US has plenty of storage as well?

Simon Wood: Well, obviously in China you’ve got a rapid expansion in underground storage. But I think that it’s a bit more limit a bit more challenged in Japan and South Korea, James, is that right?

James Taverner: Yes, absolutely. As you say Japan and South Korea are virtually entirely reliant on imported LNG with low pipeline connections. And they don’t have the geology themselves really to build large scale underground storage like you have in North America. How do you get around that? So, as you said in China, for example, the government has plans to vastly increase the amount of storage that you got there. There’s a bit more geology to do that. So, we’re helping that on that side.

Other things that people are thinking about. So, for example, for Japan and Korea, there’s plans for potentially having hubs that could supply energy from nearer. So, Russia, for example, is looking at potential storage hub in Kamchatka on the east coast there. That will be one or two days away from Japan and Korea. So, there are solutions like that that could help us well. And then the other thing to do, of course, is to think about how you can affect the seasonality within your own markets in terms of more efficiency on the heating side.

Breanne Dougherty: Because that’s one of the issues, right? Is that right now a big barrier to it is the lack of storage but then it takes 25 to 30 days to get a flexible cargo to Asia on whenever an event occur. So, 25 to 30 days naturally doesn’t resolve a physical constraint at pace. Obviously, price is capable of not only just rising dramatically but staying up there for a little bit longer than in any other markets. I think the other point that we’ll just sort of remind listeners of though is that everybody’s looking at, well hold on a second, Henry Hub prices are 250. So, wait, why are we not, why is there not more gas going? We need to remember that right now, US LNG utilization is at 100%. So, once your US LNG is running 100% doesn’t matter what the spread blows out to be, you just can’t move anymore volumes.

So, I think that’s really been interesting as well that it highlights that during the winter time period when US LNG utilization is at 100% or are expected to be at 100% just because winter demand is higher and that gets assumed that that’s going to happen, that the LNG market actually does lose a little bit of that benefit of a potential marginal cargo that can that could enter the market if there is an isolated event like this.

James Taverner: Yes, the interesting thing about that is your right, so US LNG exports after dropping to very low utilization over the summer in the period of surplus, in the winter they picked up again. Now looking at the price of Asian spot LNG compared to Europe, you would expect a lot of the cargoes from the US to go into Asia. But actually, not as many did as you might think. And the reason why is because of, well, one of the reasons why is this shipping issue that we talked about. Now, there are limited short term ships available. And if they were available, it’s for shorter periods of time. Given the shorter period of time, you can get the gas from the US to Europe but you may not have time to get all the way over to Asia and then importantly bring the ship all the way back to where it’s needed as well. And so, what we had instead was volumes from places such as Qatar, this year reduced and that was switched over to Asia instead.

So, I think this, one of the things that we’ve learned really from the last few weeks is how you have to look at pinch points across the whole value chain. It’s not just is there enough LNG but also is there enough shipping there as well. So, I have enough regasification import facilities. So, it’s an interesting lesson from the last few weeks.

Breanne Dougherty: And on the shipping side, there were also some additional constraints we were reading about related specifically to shipping routes because of some implications of COVID-19. Is that right that it actually tighten the market a little bit more?

James Taverner: Sure. Yes. So, there were delays at the Panama Canal. That’s a very important routes for US Cargoes going to Asia. You can save a lot of time going through Panama rather than around the bottom of Africa. And there were delays going through there. Now, one of the reasons for the delays was extra precautions and administrative procedures needed as a result of COVID. And we have heard other stories about how some ships have been waiting in port for longer because of quarantine requirements for cruise as well. When you have a market that’s already getting a little tight these extra days here and there all add up and adds to a much tighter shipping situation than it looked like in the beginning of the winter.

Hill Vaden: Well, in terms of, kind of, is there anything that’s happened recently that would change the behavior in terms of long-term investment or is this a blip. Am I going to, are we going to see increased investment in either trade route expansion or container build or people looking at this and just saying, this is a, you know, like he’s not going to strike twice type incident?

James Taverner: So, on the shipping side, we do have – we estimate around 53 conventional LNG tankers, new tankers coming into the market in 2021. So, to put that in context I will increase the size of the fleet by about 10% or so.

Hill Vaden: Well.

James Taverner: Yes. So, there’s quite substantial new tonnage coming in. And a lot of this is not already allocated to a specific export project. And what that means is it will be available for short-term higher. And so we expect, we expect in a few days, but we expect that by the time against the next winter is much less likely this kind of shipping tightness would happen again.

Breanne Dougherty: So, from a fundamental standpoint, there’s always been some very specific things that have happened this winter. And as you pointed out, the fundamentals look like there’s going to be some softening going ahead, sort of reducing the risk of this. But it does appear that the price response was quite disproportionate to the fundamental story. Like, why is it that the Asia price can climb to this extremely high level versus obviously, the European market, also saw some pressure and definitely climbs? But as Simon point out, there’s more flexibility there. Is there -- are there -- can we talk a little bit about the specific challenges with establishing, and the important of liquidity in a pricing conversation and the challenges that are in Asia?

Simon Wood: Yes. So, if I were to kind of surmise what happened was we saw a significant drop in the number of spot cargoes being made available, tighter conditions, the outages, particularly in Asia where there’s security of supply so people were trying to keep hold of whatever length they had in their portfolio, which meant that the number of potential participants on JKN or any other than any other part of pricing benchmarks in Asia fell. And as we kind of saw prices escalate, more and more participants fell away. And in the end, it really appeared there was just one actor in the market. And that’s when we significant spreads emerge, and we went to that bull cycle.

But as we kind of push through traditional caps in prices such as oil price parity, JCC parity, there was no mechanism by which you could benchmark that price anymore, no anchor. So, if there is anyone who’s sort of cargo, there will be -- they’ll been -- they a both supposed to be fairly high prices. But just remember the vast majority of gas that was being traded or delivered at time wasn’t being delivered at that price level. It would have been delivered all indexed or a prearranged price. You can pair that with say Europe when we have multiple liquid benchmark, multiple transportation routes and multiple players all with slightly different portfolio needs who can set the price and close there’s been a spreads.

So, you saw what been looking like it was some increased in the liquid market with all those new US cargoes free onboard entering over the summer to a very tight market very, very quickly. So, that’s the challenge of building any benchmark is how do you manage and build confidence in those swings. I should try and develop a truly Asian representative energy index.

Hill Vaden: How long, I mean, you hear stories, like in power prices and things like that where things get crazy for a couple minutes, for a couple seconds. How long did things get crazy in this incident? I mean, what was this multi-minute or multi-day event?

Simon Wood: I think it was multi week. I think week, you could say, you know, last week, when I hit those 9.3. But we were sat there kind of in December watching prices push through $10, $12, $13 push through oil price parity. Now that point we said, okay, the market going to stop balancing because there’s no, there’s not going to be new cargoes, there’s no new supply arriving. There’s going to be gas to oil switching, or gas to coal switching beyond this point. We’ve already exhausted the flexibility. And it kept on rising.

And as I say, other benchmarks have had this kind of crisis of liquidity. I remember in 2006, I think, NBP, the UK price benchmark went negative for day. NBP on the 1st of March 2018, hit 5 pounds per therm considering just trading 50 P a therm a few weeks before hand, those prices might still occur. But they normally come and go very quickly in a matter of days. In the power market it’s a matter of hours when we get these price spikes.

So, the challenge being is that those price benchmarks are very, very heavily link to the underlying physical markets. You’ve got regulators, you’ve got within day flows, instantaneous flows giving the market a very good picture of what’s going to happen. And the market can understand what’s driving that short-term supply of demand crunch and how quickly it’ll fall away. You don’t have that transparency of data in Asia. And you don’t have a single regulated authority set there ensuring that there is transparency of information. It’s a very different market.

Breanne Dougherty: Yes. And I guess, ultimately in both Europe and the United States, it’s not going to take you 25 to 30 days to bring in your marginal piece of supply, I guess. And I think it’s so interesting because when we look to the development of the LNG market going forward, I mean, naturally Asia -- Mainland China especially. And I mean Asia is going to be playing an extremely important role. So, when we think about going forward, do we think that the necessary combination of physical and paper liquidity, do we think it’s going to emerge in Asia, or is it that the Asian LNG market is going to be perpetually prone to volatility just because the nature of the physical market in Asia? And what do we think about that going forward?

Simon Wood: The challenge we got in Asia is there is no single authority that’s attempting to build a single Asian market. We’re relying on the market to create its own price benchmark and its own hub. In Europe, you had a liberalization that is politically driven in the UK and then by the European Union then short that we saw kind of transparency. And across the region, we have target models and we had energy packages wishing short compliance. There is no single body like that in Asia. What you need is a body that’s willing to combine that pipeline, the LNG market and what storage there is and kind of aggregate the liquidity from these individual points, to create some sort of virtual hub. The most obvious candidate for that would be China, which is going to the largest market in the region. It’s got significant domestic supply potential, it’s got significant pipe and import potential from Russia and [indiscernible] [00:24:42] and other regions. And you got, obviously the LNG market, and that could connect it with the rest of the world.

The problem you’ve got in China is, of course, production and imports are dominated a few large state backed actors. There’s not the quality of traders, independent producers, utilities that you have elsewhere. So, there isn’t that number of market participants but perhaps it could create that. And of course, you’d have to have a lot of certainty in the regulatory environment in order to have kind of liquid trading. And given that we haven’t got a history of that in the region, that could scare a lot of potential utilizes of that benchmark.

Hill Vaden: And James, is that some of the – if I’m thinking about this from the perspective of something like oil markets which is moving around the world on boats as well and that volatilities, you know, potentially less there at least in the – in comparison to what we’ve just seen, is it the number of participants and just the size of the market that’s really, I guess two questions, is it number of participants in the maturity of the market, the big thing that will make it more, I guess, normal? And then two, when things like this happened where is the fallout, both positive or negative? Who’s winning and who’s getting burned when you see that type of movement?

James Taverner: Sure. So, the first part there, I think number of participants would certainly help, and it’s something that across Asia people are looking at how to attract more participants to take part in traded markets. As Simon mentioned, they’re looking at China. So, for example, in China you have the Shanghai Exchange which is in trading gas now. But also in Japan, Japan is looking if they can set up its own hub there as well. And then people looking around, or Singapore, people often talk about as a hub, how do you get enough volume between those three, how can they be connected, is all three of them together without give enough participants to making a liquid market? So, certainly participants is one thing, but as Simon mentioned earlier about that physical underpinning and the ability to get volume and to solve imbalances very quickly perhaps will always be prone to some sense of volatility.

To the second point there about the fallout, it’s an interesting question. And one potential thing here is, if you go back to, say 2016, when Japan – Japanese government published its LNG market strategy, it clearly said that we no longer want our LNG to be priced just index oil. That’s a traditional way it was done. We don’t believe oil really reflects the fundamentals about market anymore. We want a local hub that will reflect our local Asian supply demand dynamics and increasing, encouraging people to link the contract’s value or to hub like that to help it develop. Now, people are looking at the market saying, the volatility record low, a few months later record high, can we see where this is going? You know, that makes it harder I think for people to have the certainty to link to the hub. And of course, banks and investment community who are thinking about how their approach to funding new liquefaction projects, can they fund something where the revenue streams might be based on what appears right now is going to be a very volatile in relative to a liquid market.

Breanne Dougherty: I think that’s really interesting because when you think – there’s two sides of it, right, that there’s a physical market that probably prefers stability, right? And a very – and ability to have a price market that they feel is very liquid, very stable, something that can give them a real sense of where the returns are going to be and what the risk exposure is going to be. Whereas if you speak to a lot of traders out there, I mean they love volatility. The dream is that you’re engaged in something, well, I shouldn’t say the dream, I won’t speak for traders in general. But let’s be honest, you know, there’s a lot of out there who live for, you could make an entire year out of two days, you know, if you’ve got the right – if you happen to hit the right exposure. And that’s what’s always made, particularly here in the United States, I mean that’s what the natural gas market here was known for, right? Yeah, there were traders that were so active speculative trading within North America, obviously surged very rapidly because around winter weather dynamics and just the ability for the market to go into such states of volatility. And, let’s be honest, market participants speculate position, you know, tends to flock to such occasion. So, I think it’s an interesting dynamic of Asia that, potentially this event is also, I’m going to put it to you guys, has this event potentially brought in some interest as well?

Simon Wood: Yes, volatility creates opportunities and traders love it. But what I’d also like to point out is that you can have volatility and stable price benchmarks. So…

Breanne Dougherty: Good point, Simon.

Simon Wood: Yes, because – so for example, like it is easier paying gas market or Henry hub, you can have a very stable futures curve and the prompt month ahead within day, day ahead moving all over the place which is where traders are making their bread and honey – milk and honey, sorry. And, but because people trust the balancing regime, the regulatory regime, the curve can remain start quite stable which means the other participant’s utilities buyers sellers are willing to use that price benchmark for the long-term contracts, because they trust the mechanisms and the flexibility within the market.

Where Asia is going to struggle is, you have a lovely beautiful volatile month ahead in Asian energy contracts moving in line with what can be quiet volatile demand path particularly in the winter months. But, you don’t want your curve to be moving in quite the same way. And what – and all of that curve to be, you need to attract participants to utilize your benchmark to see that kind of financial trading around the curve.

So, what’s happen isn’t good for encouraging people to utilize that benchmark in their contracts, but then again, every single benchmark for most commodities is being through a similar process. And you just learn from it and as long as the price discovery agencies and the market participants identify what happen this time and what can change in the future. And as James said, some of the bottleneck would start to disappear with the expansion of the shipping fleet. There’s no reason why it’s – it’s not certainly not going to be terminal for Asian energy benchmarks.

James Taverner: Traders may be interested in more volatility perhaps, but I think it’s probably less interest in that from the buying side, particularly the Japanese and Koreans who traditionally have very much favored security of supply. And I use to live in Tokyo. I was based in our office, the S&P Global office in Japan there. And when we attended the conferences put on each year by the government, Producer Consumer Conference put on by METI, the discussion was always about how can suppliers and buyers work together to ensure the stable steady growth of LNG. And so things like this, the volatility could be an obstacle potentially to steady growth, necessarily. I think many buyers some particularly governments that they’re very interested in what could be more stable measures to help develop the new wave of projects. So, we think we’ll be needed in a few years’ time.

Hill Vaden: And so what – maybe that’s a good place to leave it for a future conversation. But if we’re looking forward, we talk a lot on this podcast about the different types of energy now competing for market share. And it’s an increasingly complex world. You’ve got wind competing with solar competing with hydrogen competing with LNG competing with oil, you name it. If I am advancing the interests of something that is not LNG, I’m going to throw this up to every politician in the world and say, hey, choose my energy to build your supply around. Look at LNG. If I’m LNG I’m going to hold off and say, hey look, this is a blip. What do you think kind of the larger perception of this especially as one needs to increase market participation? I assume that Lindsay Lohan is not going to be getting on Twitter to encourage security of supply.

Breanne Dougherty: You never know. She’s an interesting lady, Hill.

Hill Vaden: Maybe I’m wrong. So, where do you guys see this going? Is this a big black eye for LNG markets as energy becomes more competitive or is this something that people look at learn from put into perspective and LNG continues to be as important as it was in the low carbon world?

Simon Wood: Well, certainly in all our scenarios, LNG remains an important constituent of the global energy mix. And we are seeing the process of commoditization occur in the LNG market, long-term contracts are falling off, we are seeing shorter more flexible contracts being signed. So, if I was the energy market, I would just turn around and go this is a natural process for the commoditization, and there was tightness in the Asian market. We sent a signal that says yes, the shipping market has too many frictions, for example. Those are frictions the market needs to sort out. The market’s letting you know it’s points of weakness. And there is an appetite from portfolio players to fix those points of weakness and that these should become less common going forward. I’m a bit more skeptical about the emergence of a really liquidation hub because of the physical limitations that we’ve talked about. But I’d like to hope that the natural progress would carry on there as well.

Hill Vaden: James, do you agree?

Breanne Dougherty: And James, any final comments? Or crystal ball predictions? We take anything like that as well, always.

James Taverner: Well, crystal ball prediction, we don’t see the Asia spot price records of the last few weeks as being something that is sustainable. Okay, that’s obvious. But crucially, we still think underlying there is a structural surplus in the markets. If you look at how much demand is expected to grow this year versus supply, we think supply could still outpaced demand in 2021 as well, which suggests that we may still have a similar size surplus by the time we come to summer again. So, we’ll expect Asian prices have dropped down again.

Now, will the short-term spike do some damage to how gas, for example, grows in South Asian markets compared to coal? That’s something that we’ll have to see as we go on, but for sure these markets be looking at ways of maybe securing supplier longer term contracts or something like that moving forward as well.

Breanne Dougherty: Well, that’s great. Thank you so much for joining us. Again, that was James Taverner and Simon Wood, who very kindly devoted some time to Hill and I to talk about all things in the LNG market. This is the first time we’ve had both of you want, actually. Neither one of you have been on prior to this. That’s very exciting for us. We constantly like to bring a new recruits, and we like to tell ourselves that once you’ve done it, you get you get a little bit of a glimpse into it and then you’re thirsty to come back for more.

So, now that we’ve got you on the roster officially, we’ll be sure to come back because as you mentioned it sounds as though, based on our base case expectations, that this was a very interesting event but that the summer is going to look very different. So, more similar to what happened last year potentially. So, we will probably be revisiting this question because it could be that we go from $2 to $39 back down to, you know, I won’t say $2 because I know it’s not $2 in our base case but, you know, back down under the $5 mark which is going to look dramatically different than obviously the last few weeks there in Asia. So, thank you very much to both of you for joining us. And, we’ll speak again soon.

Hill Vaden: Yes, thanks guys.

Simon Wood: Thanks very much.

James Taverner: Thanks, ma’am.

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