CME Group, Cheniere Energy Team Up to Launch LNG Futures Contract

By Alistair MacDonald 

CME Group Inc. said Tuesday that it is launching a liquefied-natural-gas futures contract, as industry participants continue their efforts to revolutionize this market by providing a global benchmark to help price and trade the commodity.

Last May, Intercontinental Exchange Inc. and S&P Global Platts launched a futures contract based on U.S. LNG exports.

The two attempts come as increasing shipments of LNG from the U.S. and elsewhere have helped create a spot, or short-term, market. A widely used futures contract could help integrate several regional gas markets and become an international benchmark like Brent and West Texas Intermediate became for oil. That will make it easier to price LNG while offering investors a vehicle to speculate on its price and market players a way to hedge their risks in this market.

The CME is launching its product with Houston-based Cheniere Energy Inc. The futures will be referenced to physical delivery of LNG to Cheniere's Sabine Pass terminal on the U.S. Gulf Coast.

"This agreement with Cheniere is significant because it will be the foundation for developing a new LNG risk management tool for producers, consumers and traders around the globe," Peter Keavey, CME Group's Global Head of Energy, said in an emailed statement.

Currently, there is no global price benchmark for LNG. Buyers and sellers mainly agree to yearslong LNG contracts priced off oil, gas that is piped and price-reporting agencies' data.

The Wall Street Journal reported in December 2016 that the two exchange groups were looking to create LNG futures contracts.

Companies have tried before to create LNG benchmarks with limited success, including Japan OTC Exchange and the Singapore Exchange, better known as SGX. But industry analysts say that the chance of success is greater with an increasingly large spot market underpinning the futures contract -- an agreement to buy or sell an underlying asset.

--Sarah Mcfarlane contributed to this article.

Write to Alistair MacDonald at [e-mail]

(END) Dow Jones Newswires

July 10, 2018 12:02 ET (16:02 GMT)

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