Shipbroker Simpson Spence Young (SSY) claims forward freight agreements (FFAs) will play an integral role in the volatile LNG market.
LNG freight futures contracts based on Spark Commodities’ price assessments were launched by Intercontinental Exchange (ICE), a company that operates global exchanges.
These will supplement the existing Baltic routes used to settle LNG forward freight agreements cleared and listed by American global markets company CME.
The new contracts are named Spark30S Atlantic and Spark25S Pacific LNG Freight Future contracts and they will be traded and settled in USD per day. Their first trading day is 22 March, with the forward curve going up to and including December 2023.
Spark30S Atlantic manages price risk concerning round-trip voyages between the US Gulf Coast and North West Europe, while Spark25S Pacific LNG FFA contract deals with Australia, Japan, Korea, Taiwan and China, in addition to the Existing Baltic routes.
A shipbroker with the SSY gas team 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. 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. 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. 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,” Tripodakis said.
James Whistler, SSY’s head of energy derivatives, added: “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. Anyone wanting to execute in these new markets should contact SSY Futures in either London or Singapore, as we have the necessary skills and contact base to intermediate their trades and give them up for ICE or CME clearing.”