Andy Milnes, CEO, Integrated Supply & Trading, BP, Eastern Hemisphere
With BP celebrating its 50th anniversary in Singapore in 2014, Andy Milnes, CEO Integrated Supply & Trading, Eastern Hemisphere, discusses the Group’s activities in Singapore and the region as a local partner with a global reach that can support project and infrastructure growth in Asia. Milnes’ details his efforts to foster technical diversity and promote an innovative culture, as well as how his previous experience as CEO Integrated Supply & Trading, Western Hemisphere, has influenced his current position.
What were the strategic motivations and objectives behind your recent reassignment from the Americas side of IST operations to Singapore and what does that tell us about the strategic importance of the region to the group’s global operations?
It is rare in an organization like BP for two senior executives to swap their positions. BP’s Integrated Supply & Trading business is of such a scale that it provides us with a great opportunity to maintain a degree of continuity. By swapping our respective roles, we are able to re-introduce a new stimulus and a new face without making significant changes by introducing outside leadership. Both our regions, the western and eastern hemispheres, have enjoyed great momentum thus far and we wanted to maintain that. This small organizational shack-up could even accelerate both geographies.
My experience in the west had taught me that the trading business in the oil and gas space is very transactional, particularly in the US. Deals can be executed through instant messages and emails, without ever meeting your counterparty. However, as we expanded our business in Latin America, we realized that proximity counts. Spending time with the customers and building a relationship with them is critical. Heading to take over the western hemisphere of IST, my colleague, Clive Christison, brings a lot of that relationship building expertise and a particular understanding of the customer facing aspects of the business.
On the other hand, during my time in the US, I was able to advance the project and infrastructure growth sweeping the country and region. We believe Asia is heading in that same direction and so wanted to position ourselves to effectively capture that growth.
Overall, it was a great time to make that switch and we are hopeful our respective organizations have a strong sense of continuity as a result of that. As the future prospects of flows coming out of the US to go east continue to grow, this exchange allows BP IST to get at the forefront of these developments and assessing how these will impact future flows and dynamics.
Given your experiences, how would you compare and contrast the trading business and regulatory environments in Singapore (and the greater region) with that of the Americas?
Oil regulators do have a very tough job to do, but it is made much easier when they have a vision of what they are trying to achieve. As long as that vision is aligned with creating transparent liquid markets that enables buyers and sellers to come together and agree on a fair price, the regulatory process should be rather straight forward. We sometimes see other ulterior motives around the aversion or dislike to speculators, open interest or derivatives, for instance, which are inherently not real objectives to begin with. The challenge for many regulators is achieving that balance.
I do believe that the Monetary Authority of Singapore (MAS) and International Enterprise (IE) are doing their very best to introduce into Singapore the international industry’s best practices to create a dynamic and transparent regulatory environment. Their efforts have resulted in an ecosystem that encourages and attracts business, while not limiting the scope of risk management activities.
On a broader note, I firmly believe that all geographies and national governments need to have an energy policy. However, the sad fact of the matter is that they don’t have a specific energy policy in place and therefore lurch from one extreme to another; they linger somewhere between the frantic exploration initiatives to restricting any hydrocarbon extraction in favor of more sustainable energy solutions. We need to find where that middle ground for policy and regulation which allows companies to operate within an appropriate framework, balancing environmental responsibility with resource extraction at the right paces. It’s about achieving that fine balance that is not reckless, nor riskless. Countries and governments that can strike that balance, regardless of their resource situation, are the nations that will lead the global energy industry.
With the migration of Western banks away from commodities trading, is there room for Asian banks to plug that gap?
Although it is still early stages, someone will plug that gap be it new sovereign wealth funds, or other structures, that will replace a lot of the work that the banks used to do. At the same time, we are seeing numerous Asian banks creating and building up their commodities desks. However, these things do not happen overnight and there are still many questions to be answered. For instance, the breaths of those activities beg the question of where is the best place for banks to start marketing to its customers. Is it at the very front where the focus is on the physical commodities themselves? Or is it at the back end of the curve that is longer term orientated and involves derivatives and risk management practices for end users of the products. Only time will tell and I am confident that the banks will find the best solutions.
At BP IST, we would be delighted to see a growing pool of players enter the market. The more people to trade with, the more liquidity. It’s quite frustrating knowing what you want to do but lacking the liquidity to follow through with that.
Given the importance of government and industry foresight in adapting to changing supply/demand conditions, how well is Singapore responding to regional energy dynamics, especially with regards to the shift to environmentally friendly fuels like LNG from coal and oil?
Although not as dramatic as some would make it seem, I still believe Singapore’s initiatives are quite important. The city-states position as a physical clearing hub for east/west flows has been there for many years. The LNG initiatives here are about sustaining its importance and relevance as a physical hub.
Singapore certainly has the infrastructure in place to see that through. It truly enjoys a stable political, regulatory and financial environments for physical and derivative trading frameworks. Although it is limited in land area, Singapore is effectively utilizing the space it has and is maintaining investments in upgrading its infrastructure in terms of pipelines, jetties and terminals as well as increased capacity. This enables Singapore to bring large parcels of energy products, breaking bulk and redistributing these to smaller markets in the region. Simultaneously, it also offers a closely integrated derivate market that enables consumers and suppliers to manage their risk exposures. Together, all these factors allow customers to operate in a liquid and transparent market, both in the physical and derivative form, and lead to good price discovery.
In terms of LNG, Singapore would be wise to replicate these factors and ensure that the physical and derivatives market work in unison together with the infrastructure to produce the transparency that requisites fluid and effective markets.
What are the most interesting supply and demand trends you’re observing in your area of coverage?
What is really fascinating here is that Asia is ultimately where the energy demand and demand growth is. Demand for energy in China, for instance, continues to grow at an impressive pace, as it is South East Asian as well. Japan and South Korea are trying to rationalize their refining capacities while addressing the challenges of the nuclear industry. These are only some of the most interesting developments in the region which present tremendous growth opportunities.
On the other hand, there has been a general lack of infrastructure investment into various regional geographies. Some of the emerging economies are still hindered by poor freight economics. However, we feel that this creates great opportunities for companies like BP to help these emerging economies to sustain, or even accelerate their growth by developing their infrastructure to realize better freight and blending economics, for instance. Upgrading the infrastructure is part of the bigger opportunity here. The advantage the BP has is its ability and capacity to respond to the emerging trends and opportunities through its globally integrated supply and trading business from Singapore and London, to Chicago and beyond. Few organizations in the world have this aptitude. From our offices here in Singapore, we feel like the local partners of the clients we speak with here. What we bring them is BPs global reach and expertise.
Reflecting on BPs commitment to Singapore as a knowledge hub Clive Christison told the office were in the process of establishing a Chief Technology Office since they were seeing a number of emerging technologies coming from Asia. Can you tell us a little more about the CTO and how it’s progressed so far?
The CTO is still evolving but the key objective here is to secure the future of Singapore, with a particular emphasis around our people. Trading is not just about the trader, it is about the whole team of people around the trader that make it all possible.
My years’ experience in the business has taught me that diversity is best. Building up your teams with only finance majors, for instance, can narrow down the thought processes and limit creativity. As such, the CTO will serve to create an innovative culture that promotes diversity of thought. Singapore is indeed blessed with quite a lot of cultural diversity, but we are keen to boost the technical diversity as well. We want to challenge the status quo and explore new ways of looking at and running our business. Constantly reinventing ourselves is a critical part of our business, because most of what we do each year gets competed away as soon as it’s discovered by the market. We believe that by promoting a diverse and inclusive culture, we can overcome these inherent business challenges and remain ahead of the curve.
On a more personal level, one of my biggest challenges is gender; we can do much better in attracting and promoting women in the trading business. High on my agenda for this year and the next will be to encourage undergraduate females to think of commodities trading as a career, and help those we already have on board realize their fullest potential. Having a more balanced gender mix on our floors is another way in which we seek to promote the diversity of thought in our organization that is critical to our long term success.
I would like that our partners across the region see us as partner through and through. We want to build an organization which will be perceived by the governments of the geographies we are present in as collaborator and supporter of their growth aspirations. We also want to create long term win-win situations with potential partners that will extend well beyond just a couple of trades. In doing so, we can play on of our strengths of institutional patience. We can invest through various cycles bearing in mind long term benefits instead of the short term margins. We want to form relationships with counterparties that will see them coming back to us for business. Finally, I would also like to leave a legacy around our people, internally and externally, that marks Singapore as the place where the culture of innovation flourished and where great Asian talents were molded.