From start-up to value-added trader

Nearly three years since setting up Axpo Singapore, Managing Director Sophie Ducoloner reflects on the subsidiary’s achievements, challenges and future plans. Here she shares her views on LNG market developments, the energy transition in Asia, and lessons learned from last year’s market turbulence.

Sophie, let’s begin with the milestones reached since Axpo Singapore’s launch.

There have been several highlights since we last spoke in early 2021, but our biggest accomplishment is the successful establishment of a trading company in Singapore. Setting up the trading and IT systems, ensuring an increasing cash flow, securing the right skills, and putting in place robust risk management processes required a tremendous amount of work, so we’re very proud to have successfully put all the pieces in place.

I call this phase 1, which means we’re fully operational in trading liquefied natural gas, gas and power, offering both physical and futures products. We trade physical LNG cargoes and gas futures, and have just started trading power futures in Japan. We should be ready to trade power derivatives in Australia and New Zealand by September and LPG by year end.

Congratulations! Why Japan and what was your approach branching into this new market?

The Japanese physical market is one and a half times the size of Germany’s and has huge long-term potential in terms of derivatives. The market continues to mature, which means there are significant prospects for us to offer Axpo’s expertise and know-how, including hedging products, local risk management services and advising on longer-term portfolio optimisation.

In line with our risk strategy and liquidity levels, we began with a limited number of activities and then gradually increased the positions and trading strategies to a more sophisticated level. This strategy is now bearing fruit. 

What are your priorities for the short-term?

Having established a fully-fledged trading platform, we’re now focusing on deploying and generating value in traded commodities. Additionally, we’re looking to diversify our business portfolio, specifically into liquefied petroleum gas, and trading power, gas, and carbon on additional markets in the region. We have basically entered phase 2.

Is there a phase 3 as well?

Looking at a two-year horizon, my ambition is for Axpo Singapore to become active on additional physical power markets. We may decide to launch physical power trading in Japan or Australia – or both. We might also offer risk management solutions to counterparties, as well as power purchase agreements and other origination services. That would require a lot of work, but our team is definitely up to the challenge!

Speaking of the team, your headcount has nearly doubled…

Indeed, we continue to grow and have dedicated trading teams covering both LNG and power, as well as a senior risk manager and a finance manager.

Our seventh team member will start in September and by the end of the year we should have at least 10 people on board. We are currently looking for a power analyst, LPG and power traders and an office manager.

Why should people join Axpo Singapore?

We offer the opportunity to be part of an exciting project, building an energy trading company with the support of reliable and professional shareholders. If you have the appetite for growing a business from scratch, being agile, delivering results and being rewarded for it, then you’ll enjoy being part of our team.

As the markets in Asia are not fully liberalised, and the concept of power trading here is quite new, we’re also looking to recruit people with a strong set of skills and training them on the ins and outs of commodity trading.

Are there any lessons following last year’s energy crisis?

I think one key lesson learned is to build a diversified portfolio. Thanks to our robust risk strategy and our agile way of working, we were quick to adapt to market volatility. The strategy we are deploying now – diversifying across LNG, power, gas, LPG – has proved to be the right one and completely aligned with the group. We will continue to diversify across markets and products in Asia. 

Something else the crisis validated is that it’s worth having a global approach to commodities such as LNG. Gas markets are global by nature and it’s imperative to be present in Asia, where a lot of trading and supply takes place. We’ve seen LNG become much more significant for European markets, so the fact that we’re in Asia as well as the Atlantic region is even more relevant. We understand the local drivers, what they mean for Europe, and vice-versa, and move cargoes around accordingly. Before the crisis, the LNG cargo flows pointed towards Asia, with random flows reaching Europe. Now the business is definitely more unpredictable and interesting.

Would you say LNG will ensure Europe’s security of energy supply this coming winter? 

The situation in Europe is better this year. Our analysis shows that winter shouldn’t pose huge problems. However, the markets globally are so tight that even minor events can create a lot of volatility. You could have a big event – a mix of extreme cold winter with some infrastructure breakdown – that might have huge repercussions. You could also have minor issues to which the market may overreact, as we saw recently with the small, unexpected maintenance in Norway. So this is what keeps us very busy when it comes to trading.

Can you share your assessment of the energy transition in Asia?

Asia remains extremely coal dependent. Around 55% of power generation on the continent is still generated by coal and that’s a considerable challenge. The region needs to deploy a lot of new energy relatively fast, especially in countries like China and India. While the speed of change is substantial, the markets are so big that what remains is still important. That’s the crux of the problem: finding an affordable and fast way to deploy new energy and storage solutions to decarbonise grids on a massive scale.

Our activities in Singapore continue to support the energy transition. On the physical markets side, every LNG cargo we deliver in Asia is a better choice than coal. When it comes to financial products, many more companies now understand the impact of volatility on the energy markets, due to the existing laws and regulatory distortions, the change in energy mix, and the emergence of renewables. Such an ever-changing landscape is linked with complex challenges, so we can help companies better manage this volatility and risks and, at the same time, achieve their sustainability goals.