Traders JERA and Vitol first to use Baltic Exchange assessment to hedge Sabine – Tokyo freight rates
LNG traders JERA Global Markets and Vitol have executed the first Atlantic LNG freight swap against The Baltic Exchange’s BLNG3 assessment in a bilateral trade arranged by Affinity Financial Products LLP.
The BLNG3 assessment provides a freight rate benchmark for LNG shipments between Sabine Pass and Tokyo. The benchmark is on a time charter equivalent basis with a panel of independent shipbrokers providing headline time charter rates and a ballast bonus and/or position fee assessment to give an effective rate paid by a charterer on round voyage terms.
“Following on from our initial trade in July when the Baltic’s BLNG1 assessment went live, we are very pleased to have been able to arrange a bilateral trade against the BLNG3 route,” said Benjamin Gibson, Head of LNG Derivatives at Affinity. “Interest in BLNG3 has been off the charts as this trade lane links an increasingly liquid spot market in the Atlantic and the key demand centre for LNG in Japan. As the LNG market continues to commoditise, freight is now catching up with the cargo in terms of transparency and the ability to trade BLNG3 will become an important tool along with JKM and Henry Hub.”
Baltic Exchange Chief Executive Mark Jackson added:
“Our BLNG3 route only went live in mid-August and we’re delighted to see the first trade settled against it. The Baltic’s LNG assessments are being quickly adopted by this developing market as an accurate and reliable benchmark.”
Sarah Behbehani, JERA Global Markets SVP LNG commented:
“As part of JERAGM’s efforts to increase the transparency of the LNG market, we are very happy to confirm that we have concluded the first LNG freight swap against the Baltic Exchange’s Sabine Pass to Tokyo index. The management of LNG freight price exposure is a key element of portfolio optimisation and risk management, however LNG freight derivatives have been slower to develop compared to LNG and gas-linked financial products. Freight exposure arising from US LNG is of particular importance for the development of the market, given the US Gulf Coast’s position as a marginal source of supply across the Atlantic and Pacific basins.”
Affinity confirmed that the trade was done over-the-counter (OTC) and executed bilaterally using an ISDA contract.
Gibson added, “Further bilateral trades will help develop the understanding and adoption of freight benchmarks within the industry. We are delighted to have supportive counterparties such as JERA and Vitol who will transact on this basis and, furthermore, the market is engaged with several Exchanges who have expressed an interest in listing contracts priced against the Baltic routes.”