CME set to launch LNG freight futures trade from December 23

Tuesday, 10 December 2019
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LNG Journal editor

CME Group, the global exchange and energy and commodities derivates trading and clearance platform operator, said it planned to offer the first futures contracts for liquefied natural gas freight.

CME, which is the former Chicago Mercantile Exchange, said the LNG freight futures would be launched on December 23.

Physical

“Following the recent launch of our physically delivered LNG futures contracts and alongside our benchmark Henry Hub futures and growing European Gas and JKM contracts, these new LNG freight futures contracts provide the missing link to allow counterparts to hedge their exposure along the full gas supply chain,” said a CME statement.

“The biggest unhedged risk (on the LNG market) is on the freight side,” it added.

“We have had a lot of demand from brokers and traders and are launching the LNG freight contracts as soon as possible,” stated CME.

The contracts offered are based on the assessment of three LNG shipping routes that the London-based Baltic Exchange started publishing earlier this year.

The Baltic Exchange collects data from shipping brokers to provide assessment of three routes: from Australia’s Gladstone port in Queensland to Tokyo, from the US Sabine Pass LNG plant in Louisiana, owned by Cheniere Energy, to the UK. A third freight contract is from Sabine Pass to Tokyo.

There have been several over-the-counter (OTC) deals via brokers based on the Baltic Exchange’s assessments, including between French major Total and commodities firm Glencore in July 2019 and Japan's JERA Global Markets and commodities firm Vitol in September. “OTC activity is a good indicator for us,” said CME. “Clearing via the exchange will bring this trade to the next level,” it added.

CME noted that LNG freight futures will be available on the New York Mercantile Exchange (Nymex) for trading.

So far, multi-month charters of physical vessels have been the major tool to hedge price fluctuations on the LNG shipping market.

“Strong volatility in shipping rates last year, when charter rates for LNG tankers doubled between August and October, increased the need for financial products to mitigate price risks,” said CME.

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