Home > Chemical News

Chemical News

China's Shanghai pushes ahead with trading hub plans with approval of oil, gas platform

https://www.chemnet.com   Jan 22,2015 Platts
Shanghai is pushing ahead with developing itself further as a commodity trading hub this year, with its recent approval to set up a physical energy trading platform.

The municipal government has approved the establishment of a platform for the physical spot trade of oil, LPG, natural gas, unconventional gas and other energy products, according to a December 26 statement posted early this month on its website.

The newly approved platform is one of eight commodity trading platforms that municipal government aims to develop in the Shanghai Free Trade Zone this year as part of an ongoing initiative to develop into an international trading hub. The other targeted commodities include iron ore, cotton, liquid petrochemicals and nonferrous metals, according to the Shanghai government website.

Unlike many of the other existing spot trading platforms in China, the newly approved platform is the first to have central government backing, as it is formed under a strategic alliance between Xinhua News Agency and the National Development and Reform Commission, China's powerful economic planning agency.


The two signed a strategic cooperation agreement in October 2013 to set up a national price research institute for the development of a price discovery platform which could help in the surveillance and regulation of prices, as well as jointly conduct research into sharing market information.

Xinhua Zhongrong Investment Co. Ltd., a subsidiary of Xinhua News Agency, will hold 30% stake in the newly approved oil and gas trading platform. State-owned oil majors China National Petroleum Corporation, Sinopec Group and China National Offshore Oil Corporation will each hold 10% share.

Downstream gas and power companies ENN Energy Holdings, Shenergy Group, Hong Kong and China Gas, Beijing Gas Group and China Gas Holdings will each take 7% interest while Huaneng Power International will own 5% stake, Xinhua reported early this month.

With downstream companies taking direct ownership, the trading platform aims to position itself as a gas trading hub for China similar to the Henry Hub in the US or the National Balancing Point in the UK, and over time develop into an Asia-Pacific oil and gas pricing center, according to Xinhua.

Officials at the Shanghai Municipal Commission of Commerce could not be reached for further details on the planned commodity trading platforms despite repeated attempts by Platts.

The newly approved platform's ambitions could put it in direct competition with another Shanghai-based energy spot trading platform, Shanghai Petroleum Exchange or SPX, which launched LPG and LNG contracts in 2010.

Sources from other energy trading platforms said SPX is currently seeing thin liquidity in its LPG and LNG volumes. SPX declined to comment when contacted by Platts.

Still, Deng Yusong, a researcher at economic think tank Development Research Center under the State Council, told Platts that despite a current lack of liquidity in China's spot oil and gas trading centers like platforms in Shanghai, Shenzhen, Ningbo and Daqing, he believed it was a good idea set up a new oil and gas physical trading center in Shanghai as the country would eventually develop an influential physical trading center, much like the way Henry Hub acts as a price benchmark for the US gas market.

Meanwhile, the Xinhua-led platform will be based in Lujiazui, Shanghai's commercial and financial center, which will become part of the Shanghai FTZ.

The FTZ announced in late December that the zone will be expanded to include Lujiazui, Jinqiao and Zhangjiang districts.

Covering just four areas located near Shanghai's ports and international airport, the FTZ was believed to have failed to live up to expectations and progress on simplifying and promoting the cross border flow of capital as well as relaxing rules on foreign investment have been slow in the zone.

But the enlargement of the FTZ to include financial district Lujiazui will likely help support trading platforms by extending the benefits to other companies, including foreign firms, in the financial district.
 Print  |    add to Favorites  |    Close