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Exchanges plan products to make it easier to trade liquefied natural gas
Two American exchanges are aiming to create products that would make it easier to trade liquefied natural gas, sources familiar with the plans told The Wall Street Journal.
Booming shipments of LNG — or natural gas liquefied for transportation — have created a market for short-term trading in the commodity, which is currently sold primarily in multiyear contracts.
The CME Group (CME) and Intercontinental Exchange (ICE) both plan to launch LNG derivatives that would further develop this so-called spot trade and attract more investors, the Journal reported on Tuesday. This would be similar to internationally traded Brent (Intercontinental Exchange Europe: @LCO.1) and U.S. West Texas Intermediate (New York Mercantile Exchange: @CL.1), the benchmark contracts for crude oil that traders coalesced around in the late 1990s and allow investors to see prices in real time.
The timing could be right to launch the benchmarks because more investors are interested in trading LNG over a shorter time horizon. About 15 percent of LNG was traded on the spot market in 2015, the Journal said, citing the International Group of Liquefied Natural Gas Importers.
The U.S. Energy Information Administration expects world LNG trade to more than double from 2012 levels to reach 29 trillion cubic feet in 2040.
The Journal reported both the CME and ICE benchmarks would be based on LNG shipments from the U.S. Gulf Coast, where Cheniere Energy (NYSE MKT: LNG) operates a new LNG export terminal, and other facilities are scheduled to open in the coming years.
CME and ICE declined to comment on details of their plans.
"There's definitely an interest in creating a liquid and transparent spot market and then further down the road, from an exchange standpoint, a liquid futures contract would have to follow that liquid spot market," Peter Keavey, managing director of energy products at CME, told the Journal.
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