Data & analytics firm of the year: Lacima

Broadening the scope of its product suite is what Lacima did during the past year to secure the 2021 Data & analytics firm of the year award. Specifically, Lacima – a specialist provider of energy and commodity analytics software covering trading, valuation, optimisation and market and credit risk management – substantially extended the scope of its product suite to include a first of its kind solution for the liquefied natural gas (LNG) business. With its LNG annual delivery programme (ADP) and shipping optimisation solution, not only can an LNG ADP be fully optimised but optimisations can be run in under five minutes.

Chris Strickland, Lacima

“The important thing about Lacima is that we are a dedicated energy analytics company. We have an intimate understanding of the models and methodologies that are key to the accurate valuation of financial contracts and physical assets and the calculation of market and credit risk metrics,” says Chris Strickland, Lacima’s chief executive and co-founder. “This has been our focus for the past 20 years, and we are probably still the only specialist provider of energy analytics software that covers the whole range of energy and commodities from a global perspective,” says.

Lacima offers Lacima Trader, Lacima Analytics (including a new solution for LNG) and Lacima Application Programming Interface. Each product suite is complementary and, in a world first, enables both the front office and the middle office to use the same underlying mathematical models for analysing, valuing, optimising and risk managing deals. Such an advance is a breakthrough in analysis and provides customers with a vendor solution to a major disconnect that has, thus far, been solved by internal workarounds, which are no longer acceptable in a climate of increased scrutiny, oversight and regulation.

The closest alternative solutions to what Lacima offers do not enable full optimisation and take over eight hours to run. The benefits of a single optimisation can be in excess of several million dollars to the user. This new LNG product is part of the firm’s overall Lacima Analytics product suite underpinned by unified analytics engines providing consistency between the front and middle office functions.

“Our software solutions have evolved over the last 20 years from the early analytical works published by Les Clewlow and me. We have implemented our models into integrated analytics engines and built solutions that suit different use groups [such as] front office, middle office and third-party vendors,” Strickland says. “This is something that our competitors struggle with and is a key component of our success: reducing the stress, and improving communications, between front and middle office through a common modelling framework.”

The other key factor that sets Lacima apart, Strickland says, is the insights it provides to help people understand the numbers: “If your analytics engine produces a valuation number or a risk number and no-one questions the results, then happy days, but as soon as you need to understand the drivers of the extrinsic value of a deal, or explain how the value at risk number has changed from one day to the next, then a lot of systems fall down. Having the infrastructure to be able to provide these insights is a key reason that clients gravitate towards us.”

The models underpinning Lacima’s products are based on the internationally acclaimed and acknowledged research works of Lacima’s co-founders as well as papers published with other Lacima members. These models are widely accepted in industry as major advances to analytics for the energy and commodities markets, have appeared in numerous books and articles, and are used in most other analytics solutions marketed by other vendors. Crucially Lacima’s models address both physical assets – such as thermal, wind, solar power plants, gas storage facilities and oil refineries – as well as the financial contracts that trade around them.

The global LNG market has undergone a significant transformation in the past 20 years, quadrupling in size and doubling its share of the global natural gas trade, thus emerging as one of the fastest-growing segments in the energy industry.  

Given most LNG players have a broad range of needs, including the trading of gas storage, swing and transportation as well as managing the risk of the portfolio, an effective LNG solution must coexist alongside these wider needs. Since Lacima is the only player with commercial solutions that solves this shipping optimisation problem and also provides detailed a risk management framework, the firm is ideally placed to be a market leader for this.  

The backbone of Lacima’s analytics offering is the unified analytics engines powering all our solutions so the same models and methodologies are employed to provide consistent results for the values used to trade a deal through to those used to manage the risk of the positions. This LNG addition for Lacima addresses a specific pain point which is applicable across the whole LNG industry, the calculation speed of which opens up the areas of portfolio analysis, scenarios, and calculation of risk that were not available before.

“Most energy players operate in a number of different markets and in multiple geographies and we have a comprehensive library of valuation routines that cover a wide range of financial instruments and physical assets. We calculate a range of market risk metrics,” says Strickland. “That is important because pure financial energy players have different needs from a risk calculation perspective to players that own and operate physical assets. Most other vendors in this space, especially as valuation and risk is not their main focus, address the simplest of contracts and the most basic risk metrics.”

Historically LNG industry operations consisted largely of ‘milk runs’ – a ship was loaded, for example with LNG cargo in Nigeria, sent to Japan, unloaded, and then returned to Nigeria to reload.  However new market entrants have identified the gains to be made from connecting low-value to high-value gas markets with vessels used to move gas between different regions of the world. How these market participants construct LNG portfolios, and subsequently optimise the shipping of the gas, can create millions of dollars of value. Participants are increasingly building large portfolios with overlapping optionality that can be used to significantly enhance returns due to the growing complexity of the portfolios.

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