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The HC Commodities Podcast
Trading in Asia with Iain Lawson
00:51:19
In this episode we return to Singapore and commodity trading in Asia. Is Singapore still a must -have hub as part of a global commodity footprint? What are the key commodities traded there? How do those markets differ from Europe and North America? How has the broader Asia-Pacific region fared over the last decade? And what are some of the key challenges, both market and cultural to doing there? And what might the future hold? Our guest is Ian Lawson, who's had a multi -decade career in trading and origination, including heading those functions in Singapore for the likes of BP and Mercuria and is now a senior advisor at Baringa, the management consultancy.
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Foreign.
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Welcome to the HC Commodities Podcast, a podcast dedicated to the commodities sector and the people within it. I'm your host, Paul Chapman. This podcast is produced by HC Group, a global search firm dedicated to the commodities sector. Today we're talking Singapore and commodity trading in Asia. Is Singapore still a must have hub as part of a global commodity footprint? What products are traded from Singapore? How do those markets differ from Europe and North America? How has the region fared over the last decade? What are some of the cultural differences of doing business out there and what might the future hold? Our guest is Ian Lawson, who's had a multi decade career in trading and origination, including heading those functions in Singapore for the likes of BP and Mercuria, and is now a senior advisor at Baringa, the management consultancy firm. As always, you can really support the show by leaving us a positive review on the platform you're listening on and as always, I hope you enjoy the episode. Ian, welcome to the show.
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Nice to be here.
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So we are talking Asia and commodity trading, contrasting some of the opportunities and challenges that have been presented over the last 20 years, but also in the future in comparison to the to Europe and North America in particular. Obviously leaning on your long experience in the region across various leadership roles in commodity trading. We last talked specifically Singapore in episode 183 where we had the Assistant CEO to Enterprise Singapore on. So I guess we're building on some of that but expanding it to the region. We're going to go kind of. We've got a lot to cover in the hour basically. But before we sort of dig into contrasting the, the major key products to those other regions, can you just give us some sense of place, some sense of the role of Asia in commodity trading in general and I guess Singapore in particular?
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Well, I mean, Singapore is the one that I know the best. I mean, I've been three times in Singapore. I was out here with Shell all the way back in the late 1980s. I came back out again with Goldman in the 90s and I've been out there now for 19 years across a variety of roles and it's just been astonishing to see how things change. I mean, Singapore as a country exists because of trading. You look out the window, the rows and rows of boats, the refineries on the horizon. It's really just an accident of deep water through the Straits of Malacca that Singapore exists. If you don't go through the straits in front of Singapore, you're going all the way around in between Bali and Lombok to find water deep enough for the big ships going from the west up to China. And it's just been astonishing to see how things have changed. The island isn't even the same shape anymore. You've got everything developed down around Chuas, the refineries, the storage, the whole industrial zone. The skyline has changed completely. There was no wheel when I came out, there was no Marina Bay sands. It really is astonishing. But what's particularly nice for me is they're leaning into their heritage at one point and we'll touch on this later. The rivalry between Singapore and Dubai meant that Singapore was paranoid about keeping up with the Middle east and they were talking about demolishing BO K to build more skyscrapers because they thought looking at Dubai that that's what people needed. But now they've lent into it. I've lived in Chinese shop houses, I've lived in black and whites, I live now in Chinatown. And Singapore would not be Singapore without that leaning into the heritage. It would be a very different place.
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Yeah. And it's not just a happenstance of geography. There's also kind of a series of structural reasons why Singapore has and there's been vagaries over that 30, 40 year journey, right. As ups and downs of the market, the commodity markets themselves and also changing policies and geopolitics around Singapore. But key to its success has been historically and a willingness to attract and import talents such as yourself, also rooted in English common law. Can you give us some sense of why Singapore not sort of the southern tip of Malaysia, for example?
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For example? Well, I mean, in Asia the rivalry was always really between Hong Kong and Singapore. Hong Kong for the longest time was very much the banking center. Singapore developed really as the commodity center largely because of that physical channel. It was the sensible place to put refineries, to put storage, to put bunkering. So it was not inevitable, but certainly easier to develop a physical trading hub for commodities, particularly energy, in Singapore than almost anywhere else. As the market has developed, we've seen Singapore make conscious efforts to keep a role. Things like SLNG try and stay relevant in the LNG space. There's been several places where it hasn't worked so well. I mean, they've tried to set up an exchange for fuel, for carbon, for a number of other things with varying degrees of success. But Singapore, I think, as you have said, recognizes the value of the full ecosystem around trading. It's not always easy to hire traders, but we've seen that changing. We work a lot with a number of the universities who now offer programs for traders and I've seen that change myself. 20 years ago. It was very easy to hire accountants or analysts or engineers. It was quite difficult to hire traders from the Singapore system. But that's completely changed. They recognized the value of the ecosystem. They recognized the value of having people around you that understand how this works. And it's just unquestionably the commodity capital for Asia.
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B
Yeah, yeah. And yeah, that reliance or the promotion of domestic talent has been sort of key over the last 10 years and has caused a suite of challenges, but also, as you say, has actually built a robust local ecosystem that the big rival of Dubai doesn't yet have and, you know, hasn't put the same emphasis on. So, okay, so it started and we've done a sort of a series of work on the history of oil with Colin Bryce and Addy. And you talk about Ian Taylor starting in Shell in Singapore, obviously. Let's start with where it started, which was refining, which was accrued and products trading hub. Can you give us some sense of the history of that and how that market developed and the contrast to other regions?
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The importance of Singapore as a center for platts pricing is unquestionable. It's always much more interesting to be trading around an asset in a pricing hub than anything else. At bp, we closed down two refineries in Australia in my time, Quinan Bulwer. And we looked at both, in both cases at whether we could operate them more or less as trading tools. If you think about a refinery, there's two ways of valuing a refinery. You can either say it's the net present value of your best guess at forward cash flows, effectively your forward margins, and that can be negative. If you operate it as a trading tool, just viewing it more or less as a call option on the margin, it's got a completely different value. And we're starting to see that mindset in some of the deals that are happening. Shell, for example, has been in Singapore for years with Pular Bukom, but that was recently sold to Chanda Asri and Glencore. The way that Glencore will value an asset like a refinery, particularly in a pricing hub like Singapore, is very different from how Shell will value it. Shell will view it as a supply mechanism for the downstream, whereas a trader like Glencore will will view it as a tool that can be used to optimize and to just capture flexibility. If the margins are good, you turn it up. If the margins are poor, you turn it down. So net of costs, it looks an awful lot more like just a call option on the crack Singapore obviously has done very well from its location relative to China over the last 20 years. There are some things that only worked into China because of the location and the ecosystem of Singapore. When I was a trader, for example, the quota system into China meant that there was a lot of value in being able to deliver customized cargoes of crude into the teapots. The independent refiners in Shandong and elsewhere, and the storage system in southern Malaysia and Singapore meant that you could blend these custom cargoes so that people who are under a quota in China could import cargoes that fit exactly the specifications they need without a barrel to waste and without grades to waste. So it's been a very, very good geographical and political situation for Singapore as far as refining has been concerned.
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B
Is that still true? Because obviously we've seen the ever marching level of sophistication within those teapot refiners within China and China's sort of oil trading and optimization matrix itself. Are those cargo still routing via Singapore or are they doing that increasingly directly? How's that dynamic changed?
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A
Well, the additional dynamic of course is Ukraine and the gray market. If you track where the Russian barrels are going at the moment, a lot of that is going into either India or China, but it's not coming via Singapore. So Ukraine has certainly led to a little bit of a disconnect as far as crude is concerned for Singapore. But for things like, well, let's call it the non grey market, Singapore is still very much a core part of that channel.
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B
And how does it link to a global footprint? The conversations you and I have had over the past few months obviously have been about strategics Producers, refiners are building out trading and marketing footprints, or at least strengthening them if they had them already. And for some of those, there's a big planning question over do we need to be in Singapore? Can we just cover it from Abu Dhabi? Just how does when and how does having a Singapore presence, as you say in that pricing hub, when does that become sort of the sine qua non of a global footprint? In terms of coverage, I think what.
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A
People have realized is there's an awful lot more companies that would be viewed as traditional manufacturing companies that are now understanding where the value comes from and why they need to understand some of the basic techniques of trading. Historically, people have viewed a refinery just as a machine for generating margin. But increasingly people are realizing that it has two more functions as well. It gives you access to optionality, it generates flexibility that you can value, you can capture and you can monetize. And it Also gives you access to advantaged information. It gives you on the spot, up to the minute information on what customers and competitors are doing and allows you to take proprietary trading positions around that. So the value of an asset like a refinery or a storage facility or a biomanufacturing plant in a zone like Singapore, it's far, far greater when you understand how to take advantage of all the sources of value across that.
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B
Yeah. But if you don't, if you're not lucky enough or wish to acquire an asset, is there still. I'm thinking of it as a regional hub is Singapore. So the informational intelligence hub, the trading hub that gets you access to all those other markets within the region is just some sense of, kind of. Is a global trading platform incomplete without that Singapore operation?
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A
I think so. I mean, if you are trading a properly global product like crude oil or lng. In fact, I mean, Exxon probably has more LNG people in Singapore than almost anywhere else. There's a recognition that being close to the point of consumption is useful. And in terms of information, you get information from being around other traders. We were talking recently at an AI conference and we were asked if we thought that AI would replace commodity traders. And the answer was that when the bots can drink beer and play golf, then maybe we'll talk about it.
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B
Yeah. So I got asked on the, on the soccer field this Saturday actually, and kind of my. Yeah, I think my response was similarly the same. I might do in the, in the short, very short term, but not when it comes to certainly origination roles. Certainly the longer term bets that are being made.
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A
Absolutely, yeah.
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B
And then can you just give us some sense of if, if you're trying to expand operations, you know, into other markets within Asia, is Singapore always the place to do it from? And you know, there's that connectivity to Indonesia, Malaysia and so forth, you know, Thailand, you know, or do you also need local operations in those countries? Just sort of, I guess the China story is well known, but it's sort of the other, the other countries that's of interest.
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A
It's a good question and there's no easy answer to it. I mean, I'm currently sat in St James in London and there's a reason why all the hedge funds are within like a one mile radius of here. It's because you've got critical mass. Singapore definitely generates critical mass for trading, for origination, it's a little more complex because fragmentation is a fact of life in Asia. I'm sure we'll talk more about fragmentation as we progress. But for trading, it makes sense to be near the other traders. For origination, you need to be near the customers. There is nothing homogenous about the customers. In Asia, that's where it genuinely gets more complex. Europeans trade like Europeans. The US trades like the US but the Koreans don't trade like the Japanese. The New Zealand guys don't trade like the Australians. Indonesia doesn't trade like Malaysia. You need to understand the, the nuances of how each country does things. Otherwise you'll very definitely trip over yourself. I mean, even things like business cards. I've seen American investment bankers walk into a room full of senior Japanese people, just snatch a business card out their hand, not even look at it, jam it in their pocket and then be seen later on writing on the back of it. And that's just awful. If you're a senior Japanese person, seeing somebody scribbling on your business card is not a good look.
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B
Yeah, yeah. I guess we'll come back to some of the, the cultural aspects. I mean, it is also, it's interesting. There is, you know, in the US it is just one big country. Right. Okay. There's regulatory nuances between, you know, and in power, as you mentioned, that's a very more fragmented market. It's very different between the different states and so forth. I guess that's why more often we see Europeans are based in, in Asia, certainly on origination front, because you're more used to the country complexity to some extent. Right. You know, you've got, you know, multiple different jurisdictions. Every single one has a different market. They're all at different stages of deregulation or reregulating and so forth. But yeah, it's a complex sort of pattern out there. Right?
- [15:31]
A
Yeah. I mean you can, if you, if you look west to east, I mean, almost everything in the US is a network market. Crude and products, trade by pipeline, power and gas, trade by pipeline or cable. Europe has grids for power and gas and a kind of cargo market for everything else. Once you get to Asia, there's nothing. There's no overarching jurisdictional framework and there are no inter country networks. I mean, it's a big thing for Singapore again because Singapore needs either molecules or electrons from somewhere and it's got no easy way of getting them. It has to rely on the neighbors. So the concept of some kind of localized network is more or less existential for the country. It either has to be bringing in molecules, which currently is a cargo by cargo market, or it has to be bringing in electrons. Grids have not politically. Been an easy thing to develop. In Asia, the energy and resources sector is experiencing unprecedented change. To help navigate this change and capture its opportunities, HC Group launched Enco Insights, a global advisory network dedicated to the sector providing senior advisors and subject matter experts to investment and infrastructure funds, law firms and corporates. Enco Insights leverages HC Group's 20 years of connections in energy and commodities to give clients the expertise they need when the stakes are high and insight matters. Learn more@encoinsights.com.
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B
Okay, well let's move to gas and LNG for a moment because that seems to be the other, as you just alluded to with Exxon. That seems to be, you know, you go to, you know, our Singapore office, you'd expect to see projects on, in crude products, trading and origination and also gas and lng. That's, that's certainly a market that has stuck. Can you give us some sense of how that got developed, what the sort of the primary role of your, your team in, in Singapore are doing if you have one and, and go from there?
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A
Well, yeah, I mean LNG is really interesting. I mean I've been around the market sadly long enough to watch it develop from virtually nothing. It's fascinating to look at where the economic rent sits and used to sit in lng, it used to accrue to the producer. It could be, I don't know, a Woodside or a Shell or a Qatar that can deliver guaranteed molecules to a consumer and collect a premium for security of supply. It could be say Northwest Shelf just going into cogas or Tepco or anybody else. And it's a virtual point to point. Gradually over the years you've seen a critical mass of regas, liquefaction, access to shipping and just diversification of sources developed to the point where the value, the economic rent, if you will, now accrues to whoever has a global portfolio. To optimize and to be able to optimize that, you need a couple of things. You need to understand markets. You need to be in a position where you have access to trading information and you need to have contact with your customers so that you can try and build flexibility into the contracts that you have so that you can optimize that portfolio. And LNG is an interesting one because unquestionably the countries around Asia, so Singapore, Korea, Japan, they need lng. Japan's been the biggest along with China, the biggest LNG buyer for the longest time. So if you are looking to make sure you have access to customers, Asia is the only place to be. And Singapore is unquestionably the hub for that. It is going to be interesting to see how this develops because LNG markets are changing. I think we're moving from a period of relative tightness to what will be a long market. And the whole Pride of Siberia 2 pipeline situation with China I think is going to be fascinating. China will be in a position where it can arbitrage. It can say, well, do I bring in gas from Russia or do I bring in LNG from Gulf of Mexico, from Qatar, from Trinidad, from wherever. So the value of having a short position in Asia, I think is going to rise dramatically. And it's a good time for that as well. Because if you look around the region, there are loads of countries who have developed a dependency on gas, largely on domestic gas. But where that domestic gas is now gone. The Philippines Malampaya is finished. Malaysia started importing LNG for the first time. East coast of Australia is almost a country by itself and it's short gas. So all these places are going to have to learn how to deal with LNG for their own gas requirements in a world where China now controls the switch to a certain extent. So I think the dynamics are going to change. We've seen it move from the value goes to the producer to the value goes to optimizers. And I think if the short positions play it right, there's going to be value that the shorts can collect just by committing to be takers of LNG in a market that's getting increasingly long.
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B
In that scenario, which China will be doing its own trading, so to speak. It's really about the value going to the optimizers that can help those other countries out. I imagine they will keep some portion of that value. Right? They are truly offering an optimization capability. And obviously the, I guess the LNG markets become ever more short term and spot focused in that world. I guess those shorts, those organizations also then need to do the heavy lift of building up the capability to actually be able to participate in those markets.
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A
That's it. I mean, if you, if you don't, you don't necessarily have to be a trader, but you need to understand the basics of trading. I mean, we're seeing this already. I mean, there was news this week that IOC in India is forming a partnership with Vitol. And that kind of thing makes a lot of sense because somebody like Vitol has access to really all the crude in the world. So if you're trying to capture the flexibility value of an increased crude slate, you can either build up your own trading operations, which is doable, but it can be a slow process and it needs help. I mean, that's something that we spend a great deal of time helping people understand and set up. Or you can potentially partner with someone who's already in those markets. The challenge, though, is making sure that it's an equitable space.
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B
Yeah, exactly. You need some advisors, your side, whether that's Baringa or whomever. Right. Who can say, like this is a good deal or not, and then actually build up that knowledge capability. And that actually stems, I would argue, from the board down to the.
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A
Your.
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B
Your heads of procurement and commercial and so forth, so that you can participate fairly in those. In those deals and is. Yeah. Not everyone wants to, needs to or can build a trading platform and it might be sufficient just to have those, Those key partners out there. But knowing. Knowing, of course, that, you know, they will make. They'll probably be driving Ferraris and you won't.
- [22:48]
A
Exactly. No, it'd be just you. The asymmetry of information is always going to be there. Traders have access to an understanding of the value of optionality and access to market information that somebody sitting in a refinery or an LNG terminal doesn't necessarily have.
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B
Yeah. How far are we away from that world? So I guess part of it's predicated on the pride of Siberia. When's that set up? And then is this a trend that plays out over the next 15 years, or is it here today and already taking shape?
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A
I think it's happening fairly quickly. A lot of the countries around the region are leaning into trading, I think is a good way of saying it. I mean, someone like a JIRA is already further ahead than most. They've recognized that as one of the biggest buyers of lng, they need to understand these trading techniques. And we're seeing around the region a lot of other companies that are trying to move into the same kind of space. They're not necessarily trying to set up as a proprietary trader, but they're certainly trying to understand, okay, how do we protect our base margin? How do we recognize optionality? How do we use the skills that a VTOL or a TRAFI or even a BP or a Shell used to capture that flexibility value and just make sure that we're not leaving money on the floor from the assets that we've already built and paid for.
- [24:09]
B
Yeah. And I assume, and I can't remember who said it on the podcast, it was a while back, who was saying that lng, it might have been Mark Lay, you know, as a sort of force for deregulating markets as well. Because in that picture you paint, I assume in order to actually be able to be responsive to that, that shorter timeframe market to optimize those shorts, natural gas markets within those host countries need to then deregulate as well to participate.
- [24:35]
A
That's absolutely the case because gas is inherently political. If you look at how somewhere like India has developed, it's been very conscious to protect the fertilizer section because the politics of food are unavoidable. And that's going to be an issue as gas markets develop. It's been easy in markets where you have relatively cheap, politically controlled domestic gas to make sure that it's going to the voters in the right way. And that is going to be harder and harder as you go forward. And we've seen this in the past. I mean, not so long ago, Indian power generators were very actively buying Indonesian coal producers as a way of trying to make sure that the economics of power generation in India made sense. But Indonesia very sensibly worked out that well, hang on, if we have off market transfers between Indian owned Indonesian companies and India, then our tax base is being heavily eroded. So we saw the legislation change so that taxation of coal and other products in Indonesia was driven by market prices rather than realized prices. And that's very definitely been a trend across almost everything. In Indonesia in particular, they've been very consciously trying to make sure that the economic rent stays onshore rather than being passed off anywhere else.
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B
And I guess sort of the competitive advantage for US lng, at least it has been, or the focus was talking all about flexibility, so filling that need, so to speak, I think that's been somewhat sort of eroded in expectations of the events of what's happened with Russia's invasion of Ukraine. But is, you know, around the world, the other big producers, the Middle East, I mean, they seem to want to hold fast to doing these long term deals and so forth. How are the producers responding to that?
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A
I think there's a recognition that contracts are shortening, that it is starting to look a little bit more like a crude market. But it's still very difficult to finance things that don't have a long term offtake contract attached. And I think that's partly down to decarbonization. If you're a bank. A lot of the banks were stepping back from oil, stepping back from gas, stepping back from anything that was viewed as a little bit dirty. And I think that almost interrupted the process of LNG moving to look an awful lot more like a crude market. If you're a crude producer, there's an expectation that you can just sell crude at open market crude prices and you'll be able to raise finance on that basis. Unless it's a very weird geography or a very weird grade, the banks will assume, yeah, you're selling it on a TI basis or a Brent basis or anything else. We started to see that mindset developing in the banks for lng, but it was kind of interrupted by the push towards decarbonization and the reduction of the willingness to fund anything hydrocarbon by the banks. I think it might pick up again. I think there's an increased recognition that LNG is a core part of the process to decarbonization. We'll talk more about decarbonization as we go, but everybody, I think was hoping that decarbonization would be a step change. But it's now much, much more obvious that it has to be an S curve. I think everyone hoped to a degree that the oil companies could be kept out of it. To a degree it's just not going to work. The oil companies understand the logistics, they own the infrastructure, they understand the price points, they understand the pain points of the customers. There is no way that the energy transition is not very, very closely tied to the hydrocarbon companies.
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B
Yeah, well, especially in the sort of the security profile out there.
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A
Right.
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B
Obviously with saber rattling over Taiwan, you know, like energy security has certainly returned to the forefront, you know, on that kind of. As we've discussed on this part a lot. Let's have a. Could you, can you give us a couple of moments on power? And you know, obviously we've seen, we've done episodes on power markets in Japan. You've got power markets in Australia and there's been some flip between. Do you handle that as Singapore? Do you have to have teams locally? Where does Singapore sit in that kind of kernel of power trading opportunities in the region?
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A
Well, it's definitely a core part of the ecosystem. Japan power has been very interesting. There's a lot of players who are excited about Japan power. I'm sure you guys know yourself from the hiring side how hot a market that's been. I think traders like the idea of Japan because they're trading what's effectively a cross commodity market with people that don't always necessarily realize it's a cross commodity market.
- [29:29]
B
And you mean by that different fuels in Japan?
- [29:31]
A
Yeah, exactly. So I mean if you understand the linkage between LNG or other fuels and renewables and power, you're in a good position and this has been the biggest change over the past few years. All the various different silos are breaking down and everything's being mushed together. It gets very hard to understand, say, power in Japan without understanding lng, without understanding battery technology, without understanding metals as a result. Similarly, on the diesel side or the hydrocarbon side, it gets hard to understand what's driving diesel without understanding biological and so understanding things like yuko or ags or soy or anything else. So everybody has to be pretty much across all commodities rather than just focused on one particular area. Power is a tricky one for Singapore to be at the heart of, because power is intrinsically a grid and a network market, and there's no network. So power is always going to be hard to build an Asian power trading business anywhere, whether it's Singapore or anywhere else, simply because the grids that you need for a tradable market don't exist yet. It is starting to develop. I mean, if you think about Singapore, Singapore has nothing. It's got no resources. It doesn't have water. It's had arguments with Indonesia and Malaysia over sand as it tries to.
- [30:57]
B
Yeah, covered on this podcast as well.
- [30:59]
A
Yeah, exactly. Pretty much everything that makes Singapore tick has to come in from somewhere else. And when you start looking at decarbonization and power, that becomes really complicated because it's got nothing. It's got no land for solar, it's got no wind. We're right in the equator, so there's not a breath of air. It's got no rivers for hydro. Nuclear is a possibility, and I suspect that Singapore will be one of the first countries in Southeast Asia to move in that direction. But if you need green power, you're really talking about interconnects. And the politics of interconnects are tricky. I mean, at one point, Malaysia had banned renewable power from flowing into Singapore. There have been deals to bring renewable power from Laos all the way down to Singapore.
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B
Why did they ban it out of interest?
- [31:46]
A
It's really just. Well, I mean, if we are trying to decarbonize ourselves, we don't want our rich neighbor just paying more and getting it all. It's all balanced out a little bit. But there are some really interesting discussions. I mean, Vietnam, I think, is a fascinating country because it's got potentially 650 gigawatts of offshore wind capacity or capability. But the grid is a shambles. It's a long, skinny country with a relatively underdeveloped grid. So there's some very interesting discussions about can you connect offshore wind in Malaysia, in Vietnam down to Malaysia and then potentially wheel it all the way down to Singapore. If you think about the whole of Southeast Asia, if you're trying to optimize each country individually, it's a very, very different proposition to trying to optimize the whole of ASEAN as an interconnected grid. I think it will happen eventually, but it'll take a long time, longer than some people think. And it'll probably build up with a series of bilateral deals. I mean, there's discussions going on. I think it's Singapower to bring renewable power into Singapore from Java. There's another discussion about Sarawak and all of this will happen, but it's likely to gradually build up as a grid through a series of bilateral corporate deals, rather than necessarily a coordinated government to government agreement across the whole region.
- [33:12]
B
Yeah, yeah. Just staying last bit on that decarbonisation story. A major area of growth from a talent perspective, from origination and trading and kind of even in the extent of drawing US refiners and so forth into Asia has been around biofuels.
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A
Right.
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B
You know, like all sort of essentially, I guess, mandated markets like this. You know, it's had its ups and downs. But where, where does that story sit today? Can you give us a little bit of how that's played out?
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A
It's, it's a fascinating story to be honest, because if you think about, let's think about SAF for, for a second. SAF has become a bit of a three tier market. Asia in general is quite relaxed about palm oil because it's such a core part of the regional economy, whether it's Malaysia or Indonesia. So anything that's SAF derived or SAF adjacent, Pomay or even cpo, Asia is quite comfortable with that. The US is quite comfortable with food. So corn derived ethanol, sugarcane derived ethanol, they're relaxed. The EU hates all of it. It doesn't like the idea of fuel derived from food, it doesn't like the idea of anything palm adjacent. So it's at risk of legislating itself into a little bit of a corner. The bio story globally has Asia at the heart of it. I mean, Yuko has obviously had its ups and downs used cooking oil. At one point, I think there was far more used cooking oil coming out of China than could possibly be used.
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B
Yeah, exactly.
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A
So it's stretching the definitions a little bit. I think there were probably a.
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B
This is a teaspoon of used cooking oil that goes into a barrel of palm oil and the whole thing becomes used cooking oil.
- [34:55]
A
Exactly. And food inspectors driving Maseratis Yeah, yeah, yeah, but it's, it's fascinating. I mean, but again the, it varies country by country.
- [35:04]
B
Do you need like, you know, you're sort of, you're painting this picture as well. The picture, you know, like hey look, this is, this remains that sort of critical mass center. Critical mass for, for East Asia. Clearly there's a, there's a crude and products story there, there's a gas and LNG story there. You know, is, is biofuels is, is that, where is the trading done in Singapore? Is there a sense that irrespective, as you're pointing out, that this is a market going to be here to stay because of primarily chiefly the role of palm oil and also the limited other options to decarbonize for certain markets.
- [35:41]
A
If you think about decarbonization, I mean, IMO, 2030 obviously got nudged a little bit down the road by the recent vote, but if you looked at what worked, biofuel works at the moment, it's pretty much economic, certainly more economic than a switch to ammonia or hydrogen or e. Methanol or other low carbon fuels. LNG I think is competitive and it looked like LNG as a bunker fuel would pretty much get you where you needed to be up until about 2030. Obviously everyone will be reworking their numbers and thinking about what will actually go ahead, but I think a lot of the players are just thinking they're going to wait Trump out on this. They think it will still happen, but it might just take a bit longer than people expected. So bio works at the moment, but the problem is that bio just doesn't scale. You're already using arguably more UCO than currently exists, the technology for say gasification of cellulosic waste, things like palm off cuts and everything else that would be great if we can get it to fly. But so far the economics of that haven't been fantastic. But when that happens, cellulosic ethanol, gasification of wood waste and the like, Asia is still going to play a major role in that. I think what people are struggling with is it's an inversion of the normal credit pyramid for conventional hydrocarbons. You tend to have one reasonably high credit, producer of gas or crude or whatever, selling to a whole bunch of people of lower credit quality. That whole pyramid is inverted. When you come to anything bio, whether it's used cooking oil collection, whether it's biomethane, you're dealing with lots and lots and lots of small people with limited loyalty. I mean, used cooking oil collectors will switch for a centiliter. So a lot of the bigger companies, the BPs and Shells, they struggled with digesting that change in the credit profile. So that's one issue. The other issue is just scalability. Let's say IMO 2030 goes ahead. You've got new mandates coming through for SAF, you've got new mandates coming through for blending for road fuels in Europe, and you've potentially got IMO 2030 or IMO 2031. So where's all that going to come from? Unless we have a technological step up that allows new sources of waste to go into that process, there's nothing like enough feedstock for bio going forward. And we're seeing changes in Europe. I mean, the Germans, for example, are removing the double dip, which means that if you want to meet your obligations, you're potentially going to need twice as much feedstock as you did before. So this all has to come from somewhere. Asia will be at the core of it, but it's still going to be very, very hard to see that scaling. Hello, I'm David Hunt, founder and managing.
- [38:44]
B
Director at Hyperion Search.
- [38:46]
A
Founded over a decade ago, Hyperion Search has helped organizations from major utilities to startups recruit their leadership teams and key individual contributors to accelerate both their growth and the energy transition. Our three main verticals are renewable power, energy storage and E mobility. The energy transition and the talent that delivers it has been our passion since day one. To find out more, visit hyperionsearch.com or listen to my Leaders in Clean Tech podcast, available on all platforms.
- [39:16]
B
Just out of interest, and I don't know quite where to Steve this question, but when it comes to origination, how do they, how do you, how is it organized out there and is it done by product? I know our Asia team definitely know this and probably everybody else in the company knows this, but I'm asking it, you know, is it done via product, as you would see and say in the US or is it more sort of, you know, by country? And you're going there and you're trying to piece together these deals in power, in gas and lng. You know, how does that piece work?
- [39:45]
A
The, the understanding the country and the culture becomes much, much more important than it is in, say, Europe or the us. I mean, in the us if it works in Texas, it probably works in Oklahoma. In Europe, if it works in France, it works in Belgium. Out here you really do need to understand the differences. I remember when I was setting up the LNG or helping set up the lng, trading for a bank, I'd been talking to a Korean Player for about a month, about one specific cargo. And we thought we were going to get this done, but all of a sudden my guys in Houston said, no, Ian, we don't need you to sell that anymore. We've sold that. Oh, who did you sell it to? And said, we've sold it to the Korean guy that you've been talking to for a month. What the hell? So I called him up and said, Mr. Park, we've been talking about this for weeks and weeks. Why have you just bought this through a broker? And his answer was, well, Ian, you must understand we have never dealt with you before, but we have dealt with this broker many times. And that says a lot about the Asian concept of Guangxi. Confucianism in general is much more comfortable with people that you already have a relationship with, rather than necessarily always going for the cheapest or the best. And it can take a while to realize that. Origination in Japan, for example, is fascinating. When I first went out there, I thought, oh, this is going to be like you, Europe. You'll go in, you have a group of senior Japanese people, most senior in the middle, junior at the edges. You'll do your pitch, and then an hour later, the senior guy will stand up, bow deeply, and say, Mr. Lawson, we will consider your proposal. And that's it. You've got no other feedback, and you'll do that maybe three or four times. And then eventually the junior guys at the edges will stay behind and start talking to you as an aside about the information that you actually needed to get. And if you don't understand that that's how things work in Japan or how things work in Korea, or how the family networks in Indonesia or the Philippines work. You're going to struggle. You'll get very, very frustrated by, I don't know, waiting in one of the Bakari's anterooms, watching people smoke cigarettes, waiting to get in to talk to one of the senior mining guys. You'll get very frustrated by a Philippine power generator's refusal to even talk about decarbonization. So you need to understand, country by country, how the culture works, what it takes to get things done. Otherwise it's just too frustrating.
- [42:27]
B
And out of interest is the relationship between individuals or between companies. That is, as an originator, speaking crassly, your sort of relationships go with you. Or is it you are truly representing the company and it's the company relationship and experience that matters.
- [42:44]
A
It's a little bit of the company, but it's very much the individuals as well. I remember One of the best credit managers that I ever had as a trader. He would approve things that other banks wouldn't go near because he would come with me to the meetings and he'd look the other guy in the eye and say, will you give me your word that you'll stand behind this? And he'd shake hands. So business was getting done just because my credit manager had looked in the other guy's eyes and said, yep, he's going to stand by it. We used to joke in one of the other banks about doing lending in Indonesia because security in Indonesia was often really, really hard to get. And it wasn't necessarily something that you could always sell off to get your money back. We used to joke it was left testicle security. You've got your hands on something that's no use to you, but you can use it to make the other guy's life a bit uncomfortable. And that was it. That was all the security you're going to get.
- [43:42]
B
Okay. I don't know. You can't feed that one into a CRM.
- [43:47]
A
No.
- [43:47]
B
So taking a step back, I guess, controlling, like I said, for the vagaries of the commodities markets, where we've had a transition from sort of merchant utilities and some majors to banks, then banks, to hedge funds, then to trading houses, and lo and behold, the cycle is somewhat starting again with, with those merchant utilities, producers and strategics coming back in, etc. Etc. You know, how has that dynamic played out in Singapore, to your mind, having worked at all of those types of organizations? And where are we today in that cycle? And yeah, can you give us some sense of that journey? How are the competitors changed and who is there today?
- [44:30]
A
The interest in trading in Singapore is definitely not going away. And there are more people setting up because they recognize that they have to be in Asia. Trading is about differences. Trading is about being able to find dislocations and capture them. It could be dislocations in quality, it can be dislocations in geography, it can be dislocations in time for storage. That goes all the way back to the Silk Road. I mean, the reason for the Silk Road to exist was the fact that there's demand in Asia that doesn't exist in Europe and vice versa. That really is not changing. Asia will never homogenize the way that the EU can homogenize or the way that the US can homogenize. So there's always going to be the possibility for capturing those dislocations. So I think there's always going to be an Interest in looking at Singapore as a hub for that. The interesting bell and whistle over the past few years is when I grew up as a trader, the value of a commodity was a function of its molecular quality. It's like, how pure is your iron ore, how much sulfur is in your crude? But increasingly the provenance is important. It's like, is this really used cooking oil or is it just CPO with a Kentucky Fried Chicken wing dipped in it? Yeah.
- [45:45]
B
Is this sanctioned or not type stuff?
- [45:47]
A
Yeah. Or think about hydrogen. I mean, hydrogen hasn't taken off as a market the way that people hope, but there's still a huge difference between say gray hydrogen at a dollar a kilo and green hydrogen, which might be 12. So it's the simplest molecule on the planet. You can't analyze it and see where it's come from. So being able to track provenance becomes really, really important. And these dislocations, these regulatory as well as physical dislocations mean that you've got an awful lot more to trade than you used to. It used to be that the analytics you had to do for crude oil or iron ore or coal were about basic supply and demand for some of the new products, the biofuels and anything low carbon. You have to be thinking about not just the supply and demand, but the regulatory risk as well. The regulatory pool is very much from places like the eu. I mean, a lot of the relevance of biofuel is largely down to subsidies and penalties and taxation in the eu. So I think Asia will stay as a place where because the dislocations exist, it's always going to be an interesting place to trade. So the banks haven't moved away. Every major commodity trader has offices in Asia. I mentioned Exxon as centralizing a lot of their LNG operations out here. And every week we are talking to family offices or hedge funds that are looking at setting up out here as well. It can be.
- [47:18]
B
And the major as well. Right. They've been building out and as you say, it is tricky. It's tricky from a talent perspective. You've got to differentiate yourselves from all that demand out there. Just before I want to talk a little bit about that and again, you're kind of talking to the wrong managing partner of HC Group because Damien Stewart, my co head, he's the one who spent 12 years out there and set up our, our Asia office back or Singapore office back in 2007. But I mentioned that because back in 2012 we were, you know, all, all the pool was towards China and we were Setting up a Hong Kong. We had a Hong Kong office and then we were, you know, regularly in Shanghai and it seems that that's kind of. And you, you, the world could have played out where actually you, you had to have a China office and obviously many did and a fair few people ended up in, you know, political prisoners, dare I say it. But now with China becoming sort of closed off and it's gone the way it has, it seems like there's, you know, the emphasis back on Singapore as a safe and fair place to do business, but also gets you to that sort of closer to that black box of understanding a key driver in the commodities market. So even if, I guess my point being if you don't have that key sort of asset suite out there, is it still more important than ever to have people on the ground understanding what's going on? Or can you do that from Dubai?
- [48:42]
A
I think you absolutely have to have people on the ground. You need to be close to the customers to be able to get access to optionality through contracts. You need to understand where the dislocations are happening in terms of the whole Dubai vs Singapore rivalry. Dubai has done quite well on, I feel like the gray market. An awful lot of Russian crude is being traded out of Dubai and none out of Singapore. So I think as that market normalizes, the appeal of Dubai might shrink a little bit. I think Singapore is going to stay the hub for Asia. I can't see that really changing. And part of it is the fact that the government recognizes that Singapore's existence depends on it being a trading hub. It's why it began. Unlike most governments, they will lean very heavily into making sure that they support traders setting up in Singapore. Whether that's things like the GTP or grants or anything else. They will just try and make it easy for Singapore to be a transparent and safe place for people to set up the trading hubs.
- [49:50]
B
And that actually, you know, that's what Mr. Pax said on, on, on the episode in 2024 was he actually realized they've, you know, they've been building sort of all of the, the future skill sets as well. Right. Whether that's, you know, around sort of finance and, and the digitization that's going on in commodities as well. So whereas some countries seem to like to pretend that they commodity traders don't exist and they're not the most powerful companies in their country, you know, Singapore has definitely lent into that. There are, there are of course, challenges. We don't have time now to go into about, you know, obviously a lot of, a lot of those expats have left and, and you know, there's always a tension between having to import some talent and the, the gap in or the, the paucity at the moment in local talent just purely because of the demand out there. But that's, those are questions to direct to our, our team out in, in Singapore. But, you know, well, Ian, it's been a, a real pleasure having you on. You know, we'll put links to you in the show notes. I'm sure people will be interested to continue the conversation with you one on one about your work out there and experience and also what you're doing at Baringa. And yeah, you know, hope to hopefully have you back on in a year or so and see where this story is because I found it a fascinating conversation.
- [50:59]
A
Thanks so much, Paul. It's been great talking to you.
- [51:03]
B
Thank you for listening. To find out more about HC Group, our global offices and our expertise in search within the commodities sector, please visit www.hcgroup.