Singapore — Freepoint Commodities has launched low-sulfur fuel oil sales in Asia to meet the region's growing appetite for cleaner fuels and is now crafting a business strategy to start LNG trade in the region in the next three to six months, its chief executive officer for Asia told S&P Global Platts in an interview.
The Connecticut-based trading company, which started supplying spot LSFO cargoes in Asia from its floating storage this month, is inching closer to signing its first term LSFO deal with a North Asian customer as the International Maritime Organization's January 1 deadline to cap sulfur content in marine fuels at 0.5% draws closer, said Ouyang Xiuzhang, an investment banker-turned commodities trader who has been heading Freepoint's Asia business since 2016.
"In the oil business the most interesting thing now is the IMO deadline -- everyone in the business, every part of the business, including freight, is being impacted," Ouyang said.
"We have started supplying LSFO from our floating VLCCs in Malaysia. We are supplying to end-users in north Asia on a delivered basis. You will soon hear us announcing a term deal with a North Asian end-user for supplying a sizable volume of LSFO," he added.
Freepoint is exploring opportunities to sign more term LSFO deals in Asia, as it had secured a stable sourcing plan with recent business tie-ups, he added.
Freepoint and Rigby Refining in early October formed a joint venture to develop facilities around the world to meet growing demand for IMO-compliant marine fuel. The first project will be to design and build a 10,000 b/d fuel oil processing facility in the US Gulf Coast. Freepoint will provide the feedstock and also sell the facility's production.
In addition, Pertamina's deal earlier this year to sell low sulfur materials produced at its Plaju and Balongan refineries in Indonesia to Freepoint Commodities is seen as a key step in developing the state-owned refiner's storage terminal on Indonesia's Sambu Island.
"With the Pertamina and Rigby deals, we are well positioned to provide consistent and secure LSFO supplies to our customers," Ouyang said. "We are hoping to sell multi-million mt of LSFO annually from next year onwards. A lot of buyers are looking for long-term contracts," he said.
Freepoint believes that as US oil production rises, Asia's appetite for US crude will witness a steady climb, providing Freepoint with a strong opportunity to expand its Asian footprint, Ouyang said.
"We have grown our US crude volumes in Asia. I think there is a strong opportunity for US low-sulfur crude volumes to grow in Asia in the IMO world," Ouyang said. "The full value of low-sulfur US crudes has not been realized in Asia and that's an opportunity."
He added that although most Asian refiners are currently buying spot US crude cargoes, the Asian market would eventually witness more term deals. "US crude is still a new thing for Asia and most Asian buyers have their traditional term suppliers in place."
NURTURING LNG DREAM FOR ASIA
Freepoint was launched in 2011 with private equity backing from Stone Point Capital fund, manager of the $15 billion Trident Funds. To make a push in Asia, Freepoint in 2016 brought on board Ouyang, who previously was heading Asian energy and global metals trade at Noble. Prior to joining Noble, Ouyang was managing director and head of Asian commodities trading at JP Morgan.
Ouyang said that Freepoint was putting together a business plan to launch LNG trading in Asia in the next three to six months.
"As a global trader, LNG is something which we gradually have to grow into. As a significant trader of gas, power, emissions in the western hemisphere, LNG touches all those commodities in terms of price impact. We are actively looking to grow in that space in Asia -- many of the customers will be the same as in the oil space," he said, adding that Freepoint was looking to make the first hires for its LNG Asia team soon.
In addition to LNG, Freepoint was also aiming to expand its business in agriculture and thermal coal in Asia. "We do a bit of agriculture globally but we may add more people in Asia to look at agriculture and coal," he said.
As banks reduce exposure to commodities, Freepoint, with substantial talent from the investment banking sector, would be able to provide customized solutions to customers -- from cargoes to risk management -- that would help the company make deeper inroads into Asia, Ouyang said.
"The traditional merchant model is getting harder and harder because of increasing transparency. We want to embrace technology to increase our efficiency and stay close to our customers," Ouyang said.
"There are clients who prefer doing hedging within their physical long-term contracts with us if we can provide competitive pricing. With substantial DNA from investment banks, we have a bit of an edge in integrating hedging solutions in actual physical flows," he added.
On its plans to buy assets in Asia, Ouyang said Freepoint would be looking for opportunities for strategic partnerships in Southeast Asia and South Asia. "We will explore opportunities as a joint equity or debt owner for assets -- anything that will help our global trading footprint," he said.
-- Sambit Mohanty, email@example.com
-- Edited by Wendy Wells, firstname.lastname@example.org