LNG

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. 

US energy pricing agency S&P Global Platts has deferred changes to the dated North Sea Brent oil benchmark, which has an influence on other markets including long-term LNG, after industry pressure and at a time of concern over US oil industry retreat because of restrictive government policies.

The US pricing agency said it had opened further consultations with the market on the benchmark transition.

The changes, among which was inclusion of US West Texas Intermediate Midland crude in the Brent assessment, were announced on February 22 and were due to take effect from July 2022.

However, analysts note that the North Sea Brent benchmark is crucial to the global oil system because it is used to price more than half the world’s physical crude trades.

Platts also produces the key North Asia spot LNG price, the Japan-Korea Marker price, known as the JKM.

Currently, the Brent benchmark is based on the value of five North Sea crude grades: Forties, Brent, Oseberg, Ekofisk and Troll.

Platts said it does not have a fixed timeline to discuss alternatives, such as one put forward by global commodities trader Trafigura.

“Next year, we see North Sea production falling below one cargo per day in the BFOET benchmark grades so timeline is there any way in the fundamentals,” said Platts.

Global commodities trader Trafigura has proposed using its Corpus Christi terminal, along with others in the Texas oil hub, as a free-on-board load-point solution.

Platts has asked law firm Fieldfisher to structure the working group process, the first time it has hired external counsel for a consultation.

Oil-producing nations in Africa, Asia and the Middle East have also expressed concern at Brent pricing being attached to US oil at a time of the current Administration's fierce opposition to the hydrcarbons industry.

Prior to the February announcement, Platts had held a long consultation with the oil market on Brent changes.

A move to include WTI Midland in the benchmark was widely expected, but a proposal to change shipping standards for the whole index and Midland within the assessment has raised concerns about loss of cargo value and destination flexibility.

Analysts added that a key problem with the proposal is it would likely undermine and possibly destroy the forward Brent market and derivatives contracts would change or even disappear.

The Intercontinental Exchange (ICE), one of the main trading platforms for Brent derivatives, had previously said the changes were going forward at too fast a pace.

ICE also said it would run dual contracts, letting the market choose between the new cost, insurance, and freight (CIF) dated Brent contract and its FOB version.

Vera Blei, Head of Oil Markets Price Reporting, at S&P Global Platts, said that Platts takes its stewardship of the Dated Brent benchmark and its on-going collaboration with the industry very seriously.

“Since changes to the complex were announced in February, we received extensive feedback from market participants in support of introducing WTI Midland into the basket but there is not agreement on how it would be fully reflected into the wider Brent complex,” explained Blei.

“We have listened to this feedback and believe the best route forward is to defer changes to the core FOB Dated Brent complex and to keep Dated Brent and all related assessments, including Cash BFOE, unchanged on an FOB basis,” she explained.

“This allows the opportunity for a widespread consultation with market participants so that we act on constructive suggestions to safeguard the future of the benchmark,” she stated.

Platts said it would continue to focus on incorporating Midland WTI into its existing CIF Dated Brent assessment for deliveries from July 2022, as previously announced.

This step is aimed by Platts at bringing transparency to the pricing of the existing basket grades combined with WTI Midland crude on a delivered basis, which is the way WTI Midland typically trades when delivered to the market.

Platts will also continue with its plans to form an industry working group to consult on revised terms and conditions for voluntary use to reflect the inclusion of WTI Midland in the Brent complex.

Global pricing agency Platts said the Japan-Korea Marker (JKM) price for liquefied natural gas assessed by the US firm rose to a record high of $20.705 per million British thermal units

Asian spot LNG prices are riding at six-year highs, as a cold spell in some countries in North Asia prompted record imports into the region.

While Platts reported the temporary record $20.705 trading level, though the February settled prices were still generally at around $15.550 per MMBtu.

The March price was at $9.550 per MMBtu and April was quoted at $6.500 per MMBtu.

Analysts said demand from Japan has pushed up North Asia spot cargo prices.

Jera Co. Inc., Japan’s biggest power generator and the world’s largest buyer of LNG, as well as other Japanese electricity and gas companies, are competing with LNG buyers in China and South Korea to secure supplies.

Platts said that the situation also meant that fewer cargoes were coming to Europe than is usual for this time of year.

The UK National Balancing Point benchmark gas price had been firm over the past week though has now fallen under $7.00 per MMBtu.

The NBP was last at $6.95 per million British thermal units while the continental European Dutch Title Transfer facility (TTF) price was lower at the equivalent of $6.35 per MMBtu.

“A major demand stimulus for the recent price increase was the cold snap across northeast Asia which has boosted gas consumption and accelerated drastic inventory draw-down in Japan, South Korea and China,” explained Platts.

“On the supply-side, production issues in countries such as Malaysia have depleted availability and led to delayed or deferred deliveries of LNG, as well as reduced volumes stipulated under long-term contracts,” it added.

US Gulf Coast LNG prices were lower. The February derivative contracts for FOB cargoes has declined to $5113 per MMBtu from
$6.400 per MMBtu.

The March price also fell back on the week to $4.883 per MMBtu from $5.929 per MMBtu. The April GCL price was from $4.532 per MMBtu.

Additionally, there have been shipping traffic constraints in the Panama Canal, meaning vessels carrying shipments from the US Gulf Coast have experienced longer shipping times into the Pacific region.

“This has meant more cargoes are expected in Asia in the later weeks of February or in March,” stated Platts.

Platts said it forecast a drop in Asia-Pacific demand through the first quarter. Even if some supply outages continue through March, prices were likely to decline.

S&P Global Platts, the London-based subsidiary of US ratings agency S&P Global and a provider of energy and commodities pricing information and assessments, has launched a new product linked to the Japan-Korea Marker (JKM) spot LNG price.

Intercontinental Exchange Inc. a leading operator of global exchanges and clearing houses, and US energy pricing company S&P Global Platts said they were launching an electronic platform known as eWindow for the liquefied natural gas market.

Unlike oil, which has several financial and physical trading platforms and exchanges, LNG markets are still evolving with various companies offering different productions

Platts, a unit of the US credit rating agency S&P Global Inc, already uses the eWindow platform as part of its pricing process.

The platform allows participating companies to key in their bids, offers or transactions directly and which appear on a screen for others to see.

It is aiming to launch the new platform with ICE in a few months.

ICE and Platts said the eWindow platform will be an online data-entry and communications tool that allows market participants in the Platts Markets On Close (MOC) price assessment process to communicate bids, offers and transactions directly to Platts editors and the marketplace simultaneously.

“Its grid-like screen offers an easy, at-a-glance view and allows market participants to instantly respond to the bids and offers submitted,” said a statement.

“The eWindow method is already widely adopted to power the MOC process for key oil benchmarks and now will be accessible for Platts LNG price assessments, such as Platts Japan Korea Marker, the benchmark price for LNG delivered into Northeast Asia,” they added.

ICE already has the broadest range of natural gas benchmarks, hosting UK National Balancing Point, Dutch Title Transfer Facility, Henry Hub and the Japan Korea Marker prices, allowing market participants to hedge their price risk via futures and options for the major gas hubs globally.

ICE-JKM LNG (Platts) futures and options contracts are increasingly being used as the benchmark contract for LNG in Asia and continue to break new trading records as one of the fastest growing natural gas benchmarks and the most liquid Asian natural gas benchmark.

ICE-JKM LNG hit a record 44,394 lots for futures and options combined in June and reached a new open interest record of 52,080 lots, at the end of June.

“As LNG markets continue to liberalize and new types of price agreements emerge between buyers and sellers of LNG, a range of hedging products are critical to allow the market to hedge risk and manage price exposure,” said the companies.

Chuck Vice, deputy chairman of ICE said Platts and ICE have had a long and successful history of working together to bring transparent price discovery to energy markets.

“The launch of eWindow is an important milestone in the ongoing maturity and evolution of LNG markets, moving it to the next level in terms of standardization and transparency,” he said.

“ICE is home to the broadest range of natural gas benchmark futures markets with an established and growing global community of gas traders using futures and options to transact and manage their price risk,” he stated.

Trading does not occur on the eWindow, but the tool's compatibility with ICE technology allows eWindow users to execute trades on the ICE platform without leaving the Platts MOC price assessment process and environment.