London, Houston, Washington, New York, Portland, Calgary, Santiago, Bogota, Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Porto and Johannesburg

Energy and commodity price benchmarking and market insights

The interconnection between physical, OTC derivatives and futures markets

The Argus price identification methodologies

London

Peter Caddy4 October 2012

3

What is Argus?

• Leading international and independent price reporting agency• Argus publishes market prices, market commentary, analysis and news for physical

energy and related commodity markets:

– Crude and oil products– Biofuels– Natural gas and power– Coal and biomass– Emissions– Fertilizers– Freight

4

Argus globally

Beijing Tokyo

Singapore

Sydney

Dubai

Moscow

AstanaKievLondon

Johannesburg

New York

Santiago

WashingtonHouston

Calgary

Portland

Bogota

PortoBrussels

Regulation developments

• November 2010 – G-20 Seoul Summit Leaders’ Declaration requesting joint report on PRAs

• October 2011 – Joint IEA-IEF-Opec-IOSCO report on PRAs

• November 2011– G-20 Cannes Summit request to IOSCO (Committee 7 Commodity Futures Markets)

• January 2012 – Paris meeting of IOSCO and Argus

• March 2012 – IOSCO Consultation Report

• August 2012 – Washington meeting of stakeholders

• September 2012– Wheatley Review of LIBOR endorses Independent Price Reporting Organisation Code

pp58 - 59

Various inputs

• Transactions• Bids/offers• Other market data

Overview of the supply chain

Supply chain

Refining economics

Crude oil distillation

Argus Methodologies

• Physical markets are where companies trade crude oils and petroleum products. These are all “OTC”, or over-the-counter markets, that is where a bilateral arrangement exists between seller and buyer. Price reporting agencies (or independent price reporting organisations) publish these prices which they identify from the OTC markets.

• Futures markets are where either futures contracts are traded or swaps contracts traded/cleared. These exchange markets are used for risk management purposes. The prices on these exchanges are not the prices of physical oil (except occasionally on the day that a physically delivered futures contract expires).

• Swaps are contracts used for risk management purposes that priced against a physical or futures price. The physical prices used are those published by a PRA. The futures prices used are those from a futures exchange.

Relationship of physical, futures and swaps

Methodologies

www.argusmedia.com/methodology

Argus European Products Report

Rotterdam barge gasoline quotations

Eurobob quotation

Argus Gasoline Bulletin Board

Argus Gasoline Bulletin Board: VWA

High volume of Rotterdam transactions

• There are 200 barge trades a month that meet the requirements for inclusion in the Argus Eurobob barge quotation.

• This contrasts with an average of only five cargo trades a month

• The barge quotation is robust and reliable with good liquidity

• It makes sense to use Argus fob Rotterdam  Eurobob barges as the benchmark either directly or indirectly in the Argus cif NWE price as the Argus cif NWE price is Argus Eurobob barges plus $10/t

Deals in the Argus VWA fob ARA

Rotterdam barge trades 2011

Sellers Buyers

• The market is well served with 30 participants. No‐one has a dominant position either on the sell or buy side.

Argus European LPG Bulletin Board

Argus cif ARA large

Argus cif ARA large propane

Calculating Argus North Sea Dated – the spreadsheet explained

Argus Dated Calculation

Today's date 11-Jan CFDs Day Date Days Brent Brent Brent Forties Forties Forties Oseberg Oseberg Oseberg Ekofisk Ekofisk Ekofisk

forward Dated Mar Dated Mar Dated Mar Dated MarForward N Mar 112.62 related related related related related related related related

Current CFD week 09-Jan 13-Jan 09-Jan 0.00 112.62 Mon 09-Jan -2

10-Jan 0.00 112.62 Tue 10-Jan -111-Jan 112.62 Wed 11-Jan 012-Jan 0.00 112.62 Thu 12-Jan 1 13-Jan 0.00 112.62 Fri 13-Jan 2

1st CFD week 3 16-Jan 20-Jan 4

16-Jan -0.30 112.32 Mon 16-Jan 517-Jan -0.30 112.32 Tue 17-Jan 618-Jan -0.30 112.32 Wed 18-Jan 719-Jan -0.30 112.32 Thu 19-Jan 820-Jan -0.30 112.32 Fri 20-Jan 9

2nd CFD week 10 23-Jan 27-Jan 11

23-Jan -0.15 112.47 Mon 23-Jan 12 0.50 112.97 -0.50 111.97 1.90 114.37 1.50 113.9724-Jan -0.15 112.47 Tue 24-Jan 13 0.50 112.97 -0.50 111.97 1.90 114.37 1.50 113.9725-Jan -0.15 112.47 Wed 25-Jan 14 0.50 112.97 -0.50 111.97 1.90 114.37 1.50 113.9726-Jan -0.15 112.47 Thu 26-Jan 15 0.50 112.97 -0.50 111.97 1.90 114.37 1.50 113.9727-Jan -0.15 112.47 Fri 27-Jan 16 0.50 112.97 -0.50 111.97 1.90 114.37 1.50 113.97

3rd CFD week 17 30-Jan 03-Feb 18

30-Jan -0.14 112.48 Mon 30-Jan 19 0.50 112.98 -0.50 111.98 1.90 114.38 1.50 113.9831-Jan -0.14 112.48 Tue 31-Jan 20 0.50 112.98 -0.50 111.98 1.90 114.38 1.50 113.9801-Feb -0.14 112.48 Wed 01-Feb 21 0.50 112.98 -0.50 111.98 1.90 114.38 1.50 113.9802-Feb -0.14 112.48 Thu 02-Feb 22 0.50 112.98 -0.50 111.98 1.90 114.38 1.50 113.9803-Feb -0.14 112.48 Fri 03-Feb 23 0.50 112.98 -0.50 111.98 1.90 114.38 1.50 113.98

4th CFD week 2406-Feb 10-Feb 2506-Feb -0.19 112.43 Mon 06-Feb 2607-Feb -0.19 112.43 Tue 07-Feb 2708-Feb -0.19 112.43 Wed 08-Feb 2809-Feb -0.19 112.43 Thu 09-Feb 2910-Feb -0.19 112.43 Fri 10-Feb 30

Dated Component 112.98 Dated Component 111.98 Dated Component 114.38 Dated Component 113.98

112.48 Brent Forties Oseberg Ekofisk

Anticipated Dated

Anticipated Dated average for 10 -25 days forward

North Sea Dated differential to Ice Brent

-1.8

-1.6

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.201 Sep 11 Sep 21 Sep 01 Oct 11 Oct 21 Oct

$/bl

French refinery strike begins

Strike officially ends

Ice Brent=0

Futures and physical adjustments

• Physical supplies respond to physical market fundamentals independently of the futures markets

• This is expressed through the price differentials for physical supplies

• The oil market is global not national• The oil market is highly fragmented• Price Reporting  Agencies operate in a highly competitive market but two leaders have 

emerged at global level• Argus has a leading indexation position in

• US crude oil markets• US petroleum products markets• European gasoline markets• European and Asian liquefied petroleum gas markets• European biodiesel markets• Global jet markets

Conclusions (1)

• Argus is the leading index in international European gasoline trade and in risk management contracts

• Platts is the leading index in domestic European gasoline pricing but the Netherlands and Belgium markets have switched to Argus

• The leading PRAs have competitive methodological approaches• The IOSCO review will endorse methodological principles currently being utilised by 

Argus• The Wheatley review has endorsed the IPRO Code (created by PRAs) and held it up to 

all benchmark providers as a model

Conclusions (2)

• At supra national level European markets are very competitive• But what is the geographical unit in which competition occurs?• How do regulators adapt as the industry restructures?• How do regulators respond to companies which find it difficult to change to changing 

circumstances?• How could regulators preserve and support the robust flow of information from 

market participants to price reporting organisations, in order to underpin market transparency

Challenges to regulators

Any questions?

Peter CaddyEmail: peter.caddy@argusmedia.comPhone: +44 20 7780 4200URL: www.argusmedia.com