Singapore Exchange Ltd is adding to its catalogue of liquefied natural gas derivatives with a new futures contract targeting India and the Middle East that begins trading on Monday.
The futures contracts for LNG delivered to Dubai, Kuwait and India will be based on a twice-weekly spot LNG price assessment the exchange started earlier this year in coordination with brokerage Tullett Prebon, Cheong Jin Yu, director of commodities derivatives for the exchange, said in an interview.
The new offerings will compliment the exchange’s existing contracts for spot LNG prices in Singapore and in North Asia as it tries to capture a share of the small but growing activity in LNG derivatives following the expansion of physical trading.
“It’s like a buffet,” Cheong said. “We prepare the spread and they can choose which product is best for them.”
Singapore Exchange saw 60 LNG futures contracts change hands in August, tied for its busiest month ever. Intercontinental Exchange Inc’s LNG futures, based on the Platts Japan-Korea Marker, also recorded record volumes, at 6,405 contracts.
Cheong expects derivatives trading in LNG to increase in tandem with the amount of fuel traded on the spot market. Historically, LNG buyers and sellers dealt in long-term contracts, but in recent years spot trading has increased as new projects increased global supplies. About 18% of LNG volumes were sold via spot trades in 2016, up from 15% in 2015, according to the International Group of Liquefied Natural Gas Importers.
Traders can use derivatives to protect themselves from sharp swings in prices from the time they agree to sell a cargo at a certain price and the time they need to buy a cargo to fulfill the order, Cheong said.
Singapore has 40 trading houses that deal in LNG, according to government trade agency International Enterprise Singapore.
“Commodities is one of those industry where it’s still important to gather people together in the same room,” said Cheong. “The fact that Singapore is home to more than 40 LNG trading houses, that helps.”
Singapore Exchange Ltd (SGX) signage stands inside the bourse’s headquarters in Singapore. The new offerings will compliment the exchange’s existing contracts for spot LNG prices in Singapore and in North Asia as it tries to capture a share of the small but growing activity in LNG derivatives following the expansion of physical trading.
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