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LNG on ICE

Intercontinental Exchange Inc. (ICE) is planning to launch LNG freight futures contracts based on Spark Commodities’ price assessments,

The new contracts, which ICE believes will ‘mark a milestone in the evolution of the LNG market’ will be called Spark30S Atlantic and Spark25S Pacific. The numbers in the contract names indicate the number of days it takes an LNG vessel 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 will be able to 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 plans to launch these cash settled futures contracts on 22 March, subject to regulatory approval.

These new freight contracts will form part of ICE’s global natural gas complex as the market manages freight price risk alongside existing TTF, NBP, Henry Hub, JKM LNG (Platts) and WIM LNG (Platts) contracts.

Gordon Bennett, Managing Director of Utility Markets at ICE, commented: ‘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. During that time, LNG freight markets have become increasingly volatile, significantly increasing demand for suitable LNG freight risk management tools.

‘We believe that our freight futures contracts, priced against Spark’s assessment, will provide the hedging tools the market has been waiting for. They will trade and clear alongside the highly liquid and global gas benchmarks on ICE including TTF, Henry Hub, NBP, JKM and WIM. This is a milestone moment in the evolution and maturity of the LNG market and one we think can benefit all those involved in LNG markets.’

Tim Mendelssohn, Managing Director at Spark, added: ‘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 a day on 8 January. This volatility necessitates new risk management tools as well as future orientated, tech-driven price discovery platforms.

‘By partnering with ICE, something we are very proud to do, we are hitting a critical milestone for our business; providing our customers with a cleared, tradeable LNG freight product within a platform that gives them far greater insight than their alternatives. Importantly, it demonstrates that the market wants progress.’

Ian Taylor

Ian Taylor