Intercontinental Exchange Inc. said Tuesday its liquefied natural gas (LNG) freight futures contracts launched Monday and were traded by leading industry players on their first day.
The contracts are based on LNG freight spot price assessments by Spark Commodities. ICE said 15 lots of the Spark30S Atlantic and 15 lots of the Spark25S Pacific contracts were traded for the June 2021 expiry window. The trades involved Total SE, Gunvor Group Ltd., Vitol and Glencore plc and were brokered by Clarksons plc, ICE said.
The Spark30S Atlantic contract allows market participants to manage price risk for round-trip voyages between the Gulf Coast and Northwest Europe, while The Spark25S Pacific contract allows hedging for round-trip voyages between Australia and North Asia.
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The announcement marks another milestone in the evolution of the global gas trade. The market continues to shift from inflexible long-term supply contracts to more spot trading, necessitating additional financial tools to better manage price risk. The trades come weeks after global gas prices and freight rates soared to record highs that left Asian buyers scrambling to find vessels and volumes to fulfill demand.
“The unprecedented price volatility observed on the chartering market this year has underpinned the need for a derivative product allowing us to hedge the shipping capacity of our LNG portfolio and to position ourselves to benefit from arbitrage opportunities arising in the market,” said Total’s Patrick Dugas, vice president of LNG trading. “The LNG Freight Future contracts on ICE provides us with the ability to more proactively manage our shipping exposure.”
CME Group launched similar contracts in 2019 based on Baltic Exchange assessments. Still, ICE has become the preferred marketplace for global gas traders, and Spark’s assessments are being widely utilized.
Meanwhile, global natural gas prices continue to hold as spring gets into swing. The prompt Title Transfer Facility and National Balancing Point contracts finished higher than where they started last week. Japan Korea Marker futures for May also increased. Carbon prices in Europe have continued hitting record highs in recent weeks, while colder weather in some countries and limited pipeline supplies found prices close higher on Monday as well.
Pricier carbon in Europe typically boosts demand for natural gas as it makes the fuel more attractive than burning coal at power plants. European benchmarks closed higher on Tuesday. However, warmer weather is forecast in Europe this week, with temperatures expected above normal.
Asian spot prices are also steady compared to a week ago and rose above $6.00/MMBtu on Tuesday given the bump in European prices, as the two markets follow one another closely on supply and demand trends. U.S. feed gas deliveries also set a record Saturday at over 11.9 Bcf/d, according to NGI data.
Elsewhere, the Russian government authorized the country’s long-term LNG development program on Monday. It calls for an increase to 140 million metric tons/year (mmty) of output by 2035, compared with current production levels of 31 mmty. Under the plan, Russian LNG would be competitive at prices of $3.70-7.00/MMBtu and compete with other exporters including Australia, Qatar and the United States.
In China, meanwhile, Total has signed an agreement to supply up to 1.4 mmty to the Shenergy Group. Under a joint venture, the companies would sell LNG supplied by Total to customers in Shanghai and the neighboring Yangtze River Delta region as the country’s energy consumption continues to grow. Total said it would provide the LNG from its global portfolio for a term of 20 years.
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