LNG

Intercontinental Exchange, the leading global provider of trading platforms for the whole energy complex from crude oil to LNG cargoes and European and Asian natural gas futures and options, has reported record open interest in ICE Midland crude contracts on the US Gulf Coast, also the centre of the US LNG industry.

Intercontinental Exchange Inc., the leading global provider of energy trading platforms for West Texas Intermediate (WTI) crude oil to European and Asian LNG and natural gas futures and options, has reported record activity in the ICE Midland WTI contract this month with participants using the contract to deliver physical Midland WTI barrels into Dated Brent and the rest of the Brent complex.

The Intercontinental Exchange’s second expiry date for the new Permian Basin Midland WTI American Gulf Coast Futures showed that the use of the instruments in the heart of LNG export and pipeline natural gas territory has grown quickly.

The ICE Midland WTI American Gulf Coast futures (HOU) went to its second expiry on March 23, with 2,588 contracts going to delivery in April, almost double the 1,400 contracts which went to expiry in March.

Each futures contract is equivalent to 1,000 barrels of Permian Basin originated WTI crude oil.

Since the contract began trading on January 24, over 31,000 ICE Midland WTI AGC futures have traded, including a record volume day on March 10 of 3,065 contracts.

ICE said that open interest has grown to 4,508 contracts and goes out to January 2023.

“It’s really encouraging to see how market activity is developing around HOU and how this has continued to gather momentum despite the volatility in energy markets,” said Jeff Barbuto, Global Head of Oil Markets at ICE.

“Physical market participants are seeing the value in having access to exchange guaranteed Midland WTI quality crude on the US Gulf Coast, and they are increasingly using HOU to source those barrels,” added Barbuto.

This month, ICE extended the time that participants can conduct Exchange for Physical (EFP) transactions so that they can now be executed up until the day after expiry of the futures contract.

The EFP mechanism allows participants to exchange a HOU futures position for the equivalent number of underlying physical Midland WTI barrels.

The HOU contract is deliverable at both Magellan Midstream Partners’ Magellan East Houston (MEH) terminal and Enterprise Products Partners L.P.’s Enterprise Crude Houston (ECHO) terminal.

Facilitating trading

“To further facilitate trading between the MEH and ECHO terminals to create one large liquidity pool, Magellan and Enterprise will transfer Midland WTI barrels between the terminals for no charge during the first year if the barrels are not delivered to the buyer’s preferred terminal, and at 10 cents per barrel for all other WTI transfers meeting HOU quality specifications,” explained ICE.

The Permian Basin in addition to its crude oil has prolific amounts of associated gas that will play a big future role as feed gas for LNG liquefaction and export, while also being exported by pipeline to Mexico.

ICE oil futures and options include the North Sea Brent crude contract and WTI Oil, while ICE has also pioneered the Murban oil grade trading in the United Arab Emirates.

The ICE Futures Abu Dhabi (IFAD) exchange has been underpinned by the Murban oil market since it was launched at the end of March 2021.

Some long-term LNG supply contracts for nations like Japan are linked to that oil price.

The Dutch Title Transfer Facility (TTF) and Japan-Korea Marker (JKM) for spot LNG cargoes also form part of ICE’s global natural gas complex alongside the UK National Balancing Point, the US Henry Hub, the West India Marker (WIM) LNG (Platts) and the Spark LNG Freight Futures contracts.

Intercontinental Exchange, the leading global provider of trading platforms and clearing, is pushing ahead with development of derivatives and products to allow the hedging of risk in the natural gas, LNG and oil complexes with the latest being a successful Permian Basin product launch.

The company said that its ICE Midland WTI American Gulf Coast futures went to its first expiry on February 23, with 1,395 contracts going to expiry, equivalent to 1.4 million barrels, for delivery in March.

The initial success of ICE’s WTI American Gulf Coast oil product came after record activity during 2021 in two key LNG trading derivatives, the European benchmark Dutch Title Transfer Facility (TTF) and the Japan-Korea Marker for North Asian spot cargoes.

Since the Midland WTI contract began trading on January 24, over 12,000 ICE Midland WTI AGC futures have traded, equivalent to 12 million barrels of Permian Basin-originated WTI crude oil.

Open interest is 3,576 contracts and goes out to January 2023.

Analysts note that contract is named after the Texas city of Midland which sits on the Permian Basin, a centre of oil drilling and future abundant supplies of associated natural gas for the expanding LNG sector on the Gulf Coast of Texas and Louisiana.

However, the contract code itself carries the initials (HOU) of the other Texan energy city, Houston.

Cargoes offered

“It’s early days still but HOU is off to a great start,” said Jeff Barbuto, Global Head of Oil Markets at ICE.

“We’ve seen some encouraging developments in the physical space, with cargoes being offered based on HOU pricing, EFPs taking Midland WTI to the water, and general market engagement in exploring different ways to use HOU for pricing exposure, exporting, and managing risk around Midland WTI,” explained Barbuto.

The Exchange for Physical (EFP) mechanism allows participants to exchange a HOU futures position for the equivalent number of underlying physical Midland WTI barrels.

The contract is deliverable at both Magellan Midstream Partners’ Magellan East Houston (MEH) terminal and Enterprise Products Partners L.P.’s Enterprise Crude Houston (ECHO) terminal.

ICE explained that to further facilitate trading between the MEH and ECHO terminals to create one large liquidity pool, Magellan and Enterprise will transfer Midland WTI barrels between the terminals for no charge during the first year if the barrels are not delivered to the buyer’s preferred terminal, and at 10 cents per barrel for all other WTI transfers meeting HOU quality specifications.

In addition to North Sea Brent crude and WTI Oil, ICE has also pioneered the Murban oil grade trading in the United Arab Emirates,

The ICE Futures Abu Dhabi (IFAD) exchange is underpinned by the Murban oil market since it was launched at the end of March 2021.

Some long-term LNG supply contracts for nations like Japan are also linked to the oil price.

TTF and JKM futures and options form part of ICE’s global natural gas complex alongside the UK National Balancing Point, Henry Hub, the West India Marker (WIM) LNG (Platts) and the Spark LNG Freight Futures contracts. 

Intercontinental Exchange, the leading global provider of trading platforms and clearing, and US pricing agency Platts have launched simultaneous consultations with the market on the evolution of the Brent complex, which includes Dated Brent, Cash Brent and ICE Brent Crude Oil futures.

ICE, which also operates other exchanges, including the New York Stock Exchange, also offers its platforms to allow traders to manage risk across multiple asset classes, including LNG.

In the ICE overall energy complex, it has posted record activity during 2021 in two key LNG trading derivatives, the European benchmark Dutch Title Transfer Facility (TTF) and the Japan-Korea Marker for North Asian spot cargoes.

The paper on the Brent market, co-authored by Platts and ICE which oversee, respectively, the Dated Brent physical benchmark price assessment and the ICE Brent Crude Oil futures contract, provides an overview of options for adding additional deliverable crude oil to the Brent complex and outlines a number of key issues and questions as it seeks market feedback.

Ongoing discussions conducted separately by ICE and Platts have demonstrated that industry opinion has focused specifically on two possible streams of crude to become part of Dated Brent.

The first is Johan Sverdrup as a deliverable option under the Forward Brent contract, which would remain on a Free on Board (FOB) basis.

The second is West Texas Intermediate (WTI) Midland oil, which would be a deliverable grade on a FOB US Gulf Coast basis.

All interested parties are encouraged to provide feedback and to put forward any further relevant items through the respective consultation channels.

The deadline for comments is September 30, 2021.

“Key to Brent’s multi-decade success as the global crude oil benchmark, has been its ability to evolve, and we look forward to ongoing discussions with customers as we navigate this next phase of its evolution with Platts,” said Jeff Barbuto, Global Head of Oil Markets at ICE.

“Our goal for this consultation is to facilitate a discussion with market participants covering all of the key issues which need to be addressed so that we can strengthen the Brent complex for decades to come,” added Barbuto.

In addition to Brent, natural gas has become a global market and the record levels of open interest and strong trading activity in TTF and JKM LNG futures reflect how these contracts have been developed by ICE and are at the forefront of global natural gas price formation.

Some long-term LNG supply contracts for nations like Japan are also linked to the oil price.

TTF and JKM futures and options form part of ICE’s global natural gas complex alongside the UK National Balancing Point, Henry Hub, the West India Marker (WIM) LNG (Platts) and the Spark LNG Freight Futures contracts.