The Intercontinental Exchange, the US-based operator of global trading platforms and clearing houses, plans to launch LNG freight futures contracts for the Atlantic and Pacific Basins, adding to a portfolio of sector offerings already including Japan-Korea Marker spot LNG cargo and Dutch Title Transfer Facility European benchmark derivatives.
ICE is introducing the new LNG freight futures contracts based on price assessments from Spark Commodities, a provider of technology-based solutions for promoting market liquidity.
Singapore-based Spark is backed by French data firm Kpler and EEX, part of the Deutsche Börse Group.
“These new contracts - called the Spark30S Atlantic and the Spark25S Pacific LNG Freight Future contracts - are traded and settled in US dollars per day,” explained ICE.
The numbers in the contract names indicate the number of days it takes an LNG carrier to complete a return voyage on the respective routes.
The settlement price of the contracts are based on the Spark30S (Atlantic) and Spark25S (Pacific) LNG freight spot price assessments.
“Market participants can use the contracts to manage price risk in respect of round-trip voyages between the US Gulf Coast and North West Europe (Spark30 assessment) and Australia and Japan, Korea, Taiwan and China (Spark25 assessment),” ICE explained.
Atlanta, Georgia-based ICE said it planned to start offering these cash-settled futures contracts on March 22, 2021, subject to regulatory approval.
ICE said the freight contracts would form part of its global natural gas complex as the market manages freight price risk alongside existing Dutch TTF, UK National Balancing Point, US Henry Hub, JKM LNG (Platts) and the West India Marker LNG futures contracts (WIM LNG - Platts).
“We have been in close engagement with the LNG market for more than two years about the right assessment on which to base LNG freight futures,” said Gordon Bennett, Managing Director of Utility Markets at ICE.
“During that time, LNG freight markets have become increasingly volatile, significantly increasing demand for suitable LNG freight risk management tools,” added Bennett.
“We believe that our freight futures contracts, priced against Spark’s assessment, will provide the hedging tools the market has been waiting for,” he declared.
ICE said the freight futures would trade and clear alongside the highly liquid and global gas benchmarks on ICE.
Tim Mendelssohn, Managing Director of ICE’s partner Spark, explained the aims of the new product.
“After a summer of LNG freight rates at record lows, this winter followed with the highest LNG freight rates ever assessed, peaking at $322,500/day on January 8, 2021,” said Mendelssohn.
“This volatility necessitates new risk management tools as well as future orientated, tech-driven price discovery platforms,” he stated.