SGX adds 3 new forward freight agreements and futures contracts for LNG vessels

Liquefied natural gas requires highly specialised and sophisticated vessels to transport.
Liquefied natural gas requires highly specialised and sophisticated vessels to transport.PHOTO: REUTERS

SINGAPORE (THE BUSINESS TIMES) - The Singapore Exchange (SGX) announced on Wednesday (July 14) that it has added three new forward freight agreement (FFA) and futures contracts for liquefied natural gas (LNG) vessels.

SGX said that the new contracts launched on July 12 are listed three years forward and reference the Baltic Exchange's independent freight price assessments for LNG transported on LNG-powered carriers on three routes: Australia to Japan, United States Gulf to Europe, and US Gulf to Japan.

"These three routes constitute the bulk of global spot market LNG flows and the assessments serve as benchmark pricing for LNG freight," the bourse said.

The first trade on launch day was brokered by independent ship broker SSY Futures on the US Gulf to Europe contract, with a July to August settlement basis.

Because LNG requires highly specialised and sophisticated vessels to transport, SGX said industry participants have a need to protect against price volatility as freight cost can significantly impact LNG's delivered price.

SGX's head of commodities William Chin said that the expansion into LNG freight marks a milestone in SGX's FFA business since the bourse cleared its first FFA over-the-counter swap in 2006.

"We will continue to build a suite of products that complements the physical market's green movement and transition to cleaner energy sources, and in this case, risk management tools relating to LNG-powered carriers which have a relatively lower carbon footprint compared to conventional LNG carriers," Mr Chin said.

Baltic Exchange chief executive Mark Johnson also said that the launch of the new contracts is a vote of confidence in the Baltic Exchange's LNG freight assessments.

"Our data is based on assessments made by some of the leading physical shipbroking companies in this space with quality assured by our strict governance structure," he said.

Despite the Covid-19 pandemic's impact on LNG demand and supply, SGX said that global LNG trade reached an all-time high of 356.1 million tonnes last yhear, with Asia accounting for more than 70 per cent of global imports due to its economic and population growth.

Notably, Japan and China accounted for 40 per cent of total LNG imports last year.

SGX shares fell 0.3 per cent, or three cents, to $11.37 as at 9.01am.