(EnergyAsia, July 25 2012, Wednesday) — Asia is making progress in developing a liquefied natural gas (LNG) market with competing energy media ICIS of the UK and McGraw-Hill’s Platts of the US recently achieving pricing landmarks.
According to ICIS, the world’s first cleared LNG swap traded on July 16, with the September contract price at US$13.90 per million BTU (mmBTU) settled against its East Asia Index (EAX) for physical cargoes.
The deal between Germany’s RWE Supply & Trading and an unidentified trader was brokered by Tradition Financial Services through the CME Direct trading platform and was cleared by CME Europe. A swap is generally used to hedge against the price of a commodity by exchanging cash flows that are dependent on a reference-price for the underlying commodity.
Up to this point, there has been a very small over-the-counter swaps market for LNG, with a limited pool of counterparties and no clearing services, said ICIS.
The EAX is an index for ex-ship cargoes delivered into Japan, South Korea, China and Taiwan, with the prices for the four countries assessed separately. The price series, including relevant bids, offers and deals, has been published daily since June 2010.
The deal marked the successful launch of the East Asia Index (ICIS Heren) swap futures contract for open outcry trading by CME’s NYMEX. The Commodity Futures Trading Commission (CFTC)-approved product is to be cleared through CME ClearPort.
Four ICIS Heren LNG swaps, including the East Asia Index swap, were already available for clearing through CME Clear Europe, from April 16.
“ICIS has been supporting trade in natural gas markets for over 18 years, since the first Heren Energy reports were launched. In 2007, we launched the first LNG spot market assessments. Since then, the growing volume of spot trade and market confidence in the ICIS prices have helped lay the foundation for this new era in LNG trade,” said Christopher Flook, ICIS’s managing director.
“Clearing services and more active broking should accelerate liquidity growth in this market,” said Louise Boddy, ICIS’s Head of Gas, Power, Emissions and Coal.
“The entrance of CME and Tradition promises to bring new counterparties and liquidity, helping the swaps to become more effective hedging tools. The ICIS EAX also provides the market with its first really accurate, transparent and reliable price benchmark.”
ICIS, a world leader in providing transparency for physical LNG trade, publishes five regional indices and 21 country-specific assessments for spot LNG delivered into the world’s major LNG import terminals. It also publishes FOB assessments for all major producing regions and FOB reload assessments.
Last month, Platts launched its forward assessments of swaps for Asia-Pacific-delivered LNG, expanding its coverage and suite of price references for the product.
The forward assessments, also known as forward curves, reflect swaps based on Platts’ Japan/Korea Marker (JKM) physical spot price assessment with a standard contract-size of 10,000 MMBtu.
One month, two months and three months forward assessments are now available. The Platts JKM spot price and swaps assessments represent cargoes that are delivered ex-ship to ports in Japan and Korea.
Platts also has launched an additional half-month price assessment for physical spot market LNG delivered to Japan and Korea, thereby extending the forward curve by about 15 days.
“The launch of forward LNG price assessments reflects Platts’ commitment to bringing greater transparency and efficiency to markets by establishing a comprehensive offering of key price references,” said Larry Foster, Platts global editorial director, power.
“The expansion of our price data offerings for both physical LNG cargoes and LNG derivatives in Asia further augments our portfolio of price references for a key price benchmark as the global gas marketplace develops.”
Platts said it launched the world’s first independent daily price assessments of Asia-bound LNG in February 2009 and price assessments for India- and Middle East-delivered LNG and spot charter assessments for LNG vessels in 2010.
Platts said the first LNG swap deal based off of its JKM price assessment for delivered spot cargoes was executed in January 2011 by a prominent global investment bank.