FFAs ‘game-changer’ in volatile LNG shipping market

Global exchange operator Intercontinental Exchange (ICE) has launched LNG freight futures contracts based on Spark Commodities’ price assessments. These will supplement the existing Baltic routes used to settle LNG FFAs cleared and listed by CME.

The new contracts – Spark30S Atlantic and Spark25S Pacific LNG Freight Futures – will be traded and settled in US$ per day.

Trading is scheduled to start 22 March, with the forward curve going up to and including December 2023.

SSY gas team shipbroker Phillip Tripodakis believes these new offerings could be a game-changer. "With an increasingly liquid LNG FFA market, both owners and charterers will be able to effectively manage and optimise their freight price exposure and capture best value from seasonal changes in the market," said Mr Tripodakis.

"Spark-linked time charters in conjunction with LNG FFAs will enable owners to hedge against shoulder month market lulls while maintaining exposure to lucrative seasonal upswings," he said.

"In turn, charterers can make focused hedges against winter freight rate peaks while ensuring they pay the bottom of the market in the shoulder months."

Noted Mr Tripodakis, “From 2023 onwards, the LNG market should rebalance. We expect to see healthier rates across seasons as demand growth for LNG continues unabated and a record amount of new LNG production comes on stream. Existing vessel capacity will be short to cover this additional demand for shipping.”

Mr Tripodakis said LNG FFA contracts can be used to manage price risk in respect of round-trip voyages between the US Gulf coast and northwest Europe [Spark30 assessment]; and Australia and Japan, South Korea, Taiwan and China [Spark25 assessment], in addition to the existing Baltic routes.

SSY head of energy derivatives James Whistler said “We are delighted to see ICE joining the LNG FFA market with an offering based on the popular Spark indices, ICE will bring new traders on board as they have such a strong existing network of LNG traders who will want to cover their freight exposure.”