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Comments (30)

Oct 10, 2021 - 5:20pm

If you are in natty you just know they done

Oct 10, 2021 - 6:21pm

This article is a bit too aggressive I think. That is the model and how it works but I cannot imagine they would leave that much freight spread open, since people's view already this year was no matter what TTF does it cannot overtake JKM till cash.

The bankers should work with them to get out of this jam but pretty shitty for a firm who should have a record year is going to have to fight to make it.

  • Associate 3 in S&T - Other
Oct 10, 2021 - 7:10pm

Curious to understand why LNG traders are struggling with Europe and Asian (import market) prices blowing out relative to the US (an export market).  

At first glance, I would have thought assets (ie liquefaction and tankers) to move cargoes from a US price and arb into Europe and Asia would be great.  

But the article almost presents their exposure in the other direction (short Europe and long US).  Can anyone clarify? 

Most Helpful
Oct 10, 2021 - 7:38pm

Sure, first off Gunvor is not mainly a financially driven trader their focus is building a portfolio of contract options/assets to serve end use customer needs. This not citadel we are talking here but the focus will be for them to solve the S/D globally for LNG, locally for certain markets and then compare to the "freight spread". Now why they may be in trouble...

Let's say I own a 5 year LT contract to buy US LNG from Cheniere which goes into my global portfolio. Now I also have relationships to sell LNG to say Brasil/Japan/etc. So this is just physical setup; further the most liquid hubs for LNG in the world is #1 by far HH then TTF (Europe) and then JKM (Asia), the issue is each has their own settlement window and other risks.

So to simplify my business where I do not bet on the "outright price" but instead on "physical optionality" I go to my customers/suppliers and try to find contracts that give me access to these liquid financial products. So from Cheniere I buy LNG in the USA at HH + some fixed cost, I prepare to sell to my customers TTF + some cost. The reason for this is no physical LNG sale ever is done at TTF/JKM since its like an auction where people ask for cargoes on a spot or long-term basis. So if I know Brasil is going to pay me TTF + 5, and Cheniere wants HH + 2. I can capture $3 by closing off this exposure in the future. Also by closing off this sale I open my whole portfolio; lets say HH>TTF some day, lets say I can divert to Brasil for TT + 4 etc... So my exposures now are: -HH, +TTF, +3. So to hedge that direct price exposure I go and buy HH from the exchange and sell TTF to the exchange. So my book is now, +3 physical portfolio alive. My exposures to the exchange is +HH, -TTF; my bilateral exposure is -HH, +TTF.

So the article assumes that Gunvor may have left a ton of "freight or physical optionality open" while closing everything financially. Which is possible but again Gunvor does infact have a good idea of the market S/D and to leave no delta open at all when most people assumed physical optionality would be limited if the flat price ripped...seems really offside. But for sure possible.

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Oct 11, 2021 - 6:57am

yeah i have a hard time wrapping my head around the underlying physical delivery. The only risk is that the financial undwinding of the positions limits the "money that was left on the table" from selling TTF at $15-$20 instead of $35-$40 

Also the freight costs moving against you while not have that hedged but i don't see what the forward curve of freight blowing out to put that arb out of the money even if TTG at $15 and HH at $5

Oct 11, 2021 - 8:08am

I tried reading the zero hedge article and still cannot make sense of it. How does freight come into the equation? Is it because they have a time charter fleet where the freight cost is much lower than the spot market and so even if TTF- HH starts losing money they are still net positive due to freight savings?

  • 1
Oct 10, 2021 - 11:44pm

HFs also started to short this ttf against henry because the relationship was nothing seen "historically" and Gazprom Nord Stream 2 pipeline construction was announced to be completed.

this is an hell of a mess and no one can call when it will be over.


  • 1
Oct 22, 2021 - 2:23pm

Agree with Wallace on this one - I hate to suggest or imply that those desks putting on those RTM trades aren't smart, they obviously are, but this kind of trade placed in the middle of this kind of truly physical-driven market dynamic is a frightening position. You are indirectly betting that the entire LNG value chain can AT LEAST maintain its current balance w/out fail, i.e. a pair of US LNG trains go down for a month and Europe could blow out. I don't know, seems like the opposite of an asymmetric bet if you ask me, whatever that's called.

Oct 11, 2021 - 11:13pm

I love it when phys/fin trades go boom.

If they didnt mismatch the position (very low chance), then the trade(s) are still in the money for them.

...but oops!  "Margin call, Gentlemen" and they squeal, " You know perfectly WELL we don't have three hundred and ninety-four million dollars in CASH!"

I can even imagine the bilaterals even having a high threshold CSA or the like attached as well with the physical counterparties.  

On a brighter note, ignoring the margin call problems, if they bought Cherniere at those prices AND locked in the freight to TTF...WOW.

For all you non-commodity folks.  THIS is the thing you never see in any other asset class.  Phys/fin, Natty Widowmaker trade, Death Star...

God, I miss the good ole days.



  • 2
Oct 14, 2021 - 4:00am

Its really interesting to see how freight plays a part and how on the physical side a trade is basically an amalgamation on different parts of the value chain.

  • 1
Oct 22, 2021 - 4:31pm

Here's what I got don't tell it comes from me. It's their position in July.

Gunvor is already loaded up. Derivatives, marked at positive gains as of July. So well before the Europe/NS2/TTF  they're loaded up to pedal to the floor.

So it would be interesting knowing how much of their credit lines is used at this point.

 I've also received Gunvor group email that they sent over to my credit group ,  they seem in the classic denial phase  (Private message me if you want to peep this one).

  • 2
Oct 16, 2021 - 11:23am

Jacques Simon's blog always brings up interesting stuff I wouldn't necessarily think about in my market but he has this view that Cargill and Mercuria are the only trading houses that will make it in the long run and can be extremely bearish the other guys at the slightest misstep. Still, this is wild.

Oct 17, 2021 - 8:57am

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