Providing alternative means to contract for storage assets.
Historically contracted on a long-term basis, access to crude oil storage has previously been available only to large, well-capitalized customers who can physically accept and schedule large deliveries. The Matrix model significantly increases the number of traders who can access storage via short-term to intermediate-term contracts.
The Matrix model allows storage operators to leverage the optionality inherent in storage contracts, which resemble the characteristics of calendar spread option derivative contracts, cleared on both the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE). The value of today’s term contracts is established by the value of the forward curve during renegotiation. Under the Matrix model, which has exposure to a flattening curve similar to a term contract, the storage operator will capture the entire value of a steeper contango—value that normally accrues to the lessee. When coupled with other aspects of the program, the Matrix model is an excellent adjunct to a storage operator’s risk profile.
By developing a standardized storage futures product, there is a substantial reduction of counterparty risk through the exchange clearing house guarantee. This not only minimizes credit exposure found in term contracts, it provides a significant reduction in costs for all parties as there is no need for extensive legal review inherent in the negotiation of a term contract.
Optimizing the value of storage assets and providing flexibility, the Matrix model is a desirable way for storage operators to attract more customers, maximize their storage utilization, and ultimately increase revenue and overall profit. Easily scalable, the Matrix model can also be expanded geographically, bringing value to storage operators by creating a liquid hub at their location.
Success Story: LOOP
In partnership with CME, the Matrix model was first applied at the Louisiana Offshore Oil Port LLC (LOOP) in March 2015. Through the introduction of a once-a-month auction, using Matrix’s proprietary auction platform, industry clients have increased utilization of the 7.2 million barrels of storage capacity LOOP has committed to the CME/Matrix program. Get the full success story.