ICE to Launch LNG Freight Contracts as Gas Market Comes of Age

By David Hodari

Intercontinental Exchange Inc., known as ICE, said Wednesday that it will launch futures for the freight of liquefied natural gas, in another signal that the gas market is becoming increasingly mature.

The exchange said it will launch two U.S. dollar-settled futures contracts on March 22 that will use price assessments from price-assessment company Spark Commodities to reflect the shipping of LNG.

The Spark30S Atlantic contract will cover voyages in the Atlantic Ocean between the U.S. and Northwest Europe while the Spark25S Pacific contract will reflect journeys in the Pacific Ocean between Australia and East Asia. The numbers in each name indicate the number of days it takes LNG vessels to complete return journeys on those routes.

"LNG freight markets have become increasingly volatile, significantly increasing demand for suitable LNG freight risk-management tools," said Gordon Bennett, managing director of utility markets at ICE. He added that freight futures contracts will provide the hedging tools the market has been awaiting and that "this is a milestone moment in the evolution and maturity of the LNG market."

The freight price of LNG has been highly volatile in recent years. In June last year, freight rates hit record lows of $17,750 a day--as the twin forces of warm summer weather and the heavy economic impact of the coronavirus pandemic slammed demand. Then they soared to record highs of $322,500 a day on Jan. 8 this year amid a shortage of gas ships and an icy winter.

The freight futures contracts ICE is launching are aimed at managing that risk of volatile pricing.

The popularity of trading the LNG market has also sharply increased. As technology for shipping LNG has improved and trade of the commodity has become increasingly common, decadeslong contracts have become increasingly unattractive. Demand has increased for more flexible contracts based on hedging and short-term demand.

As a result of increasingly global and flexible trading, LNG trading volumes have shot up, ICE says. The exchange says that natural-gas derivatives based in the Netherlands and between Japan and South Korea had their busiest January on record in terms of open interest and trading volumes. The open interest for both benchmarks is up at least a third from a year ago.

Write to David Hodari at david.hodari@wsj.com

(END) Dow Jones Newswires

February 10, 2021 05:14 ET (10:14 GMT)

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