ICE to Launch LNG Freight Contracts as Gas Market Comes of Age
February 10 2021 - 5:29AM
Dow Jones News
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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