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CME Unveils NBP-Henry Hub Swap Futures, Options to Handle LNG

The increased amount of liquefied natural gas (LNG) in the world is quickly developing a global market for natural gas and CME Group Inc. is looking to capture interested traders by creating new contracts that span the gap from the United States to the United Kingdom.

On Tuesday CME said it is adding new National Balancing Point-Henry Hub swap futures and options contracts, which are scheduled to begin trading on May 10 for trade date May 11. Located in Erath, LA, the Henry Hub is where the primary price is set for the North American natural gas market because it interconnects with nine interstate and four intrastate pipelines: Acadian, Columbia Gulf Transmission, Gulf South Pipeline, Bridgeline, NGPL, Sea Robin, Southern Natural Gas, Texas Gas Transmission, Transcontinental Gas Pipe Line, Trunkline Gas, Jefferson Island and Sabine Pipe Line.

Just as the Henry Hub is the go-to pricing point for natural gas futures contracts traded on the CME's New York Mercantile Exchange (Nymex), the National Balancing Point, commonly referred to as the NBP, is a virtual trading location on the National Grid -- the natural gas pipeline infrastructure operator of the United Kingdom -- for the sale and purchase of UK natural gas. While it differs from the Henry Hub in that it is not a physical location, the NBP is the pricing and delivery point for the International Petroleum Exchange natural gas futures contract. Gas at the NBP trades in pence per therm.

The new contracts are listed with, and subject to, the rules and regulations of Nymex. The contracts will be available through CME ClearPort, a set of flexible clearing services open to over-the-counter market participants to help mitigate counterparty risk and provide capital efficiencies across asset classes. The options contract will also be offered for trading on the Nymex trading floor.

"The contracts will appeal to commercial participants involved in the international waterborne LNG market, as well as international LNG traders, global energy companies, national energy companies, utilities and electricity generators," CME said.

The debate over where LNG cargoes will end up going this summer continues to rage. On Monday FBR Capital Markets analysts said they believe that LNG imports into the United States (1.4 Bcf/d April to date and 1.8 Bcf/d peak flow) will reach above 2 Bcf/d on a sustained basis this summer due to slackening global demand (see Daily GPI, April 28). However, Barclays Capital analysts last week pointed to China, Europe and India as providing support to global LNG demand (see Daily GPI, April 23).

The commodity code will be E2 for the futures contract and V1 for the options contract. The first listed month will be June 2009. Monthly contracts will be listed for 16 consecutive months through September 2010, with the expectation of listing an additional three consecutive months at the end of each quarter.

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