LNG Freight Swap Trades on UK Baltic Exchange

LNG traders Jera Global Markets (JGM) and Swiss-registered 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, the four parties involved said September 25.

The BLNG3 assessment provides a freight rate benchmark for LNG shipments on the 53-day round-trip voyage between Sabine Pass and Tokyo and so can be used to assess other routes between US Gulf and Japan, through the Panama Canal.

The benchmark is on a time charter equivalent basis with a panel of shipbrokers with no stake in the outcome providing charter rates and a ballast bonus and/or position fee assessment to give an effective rate paid by a charterer on round voyage terms. When liquidity develops and confidence grows, the methodology is likely to be replaced by screen trading.

Affinity said interest in the "BLNG3 route 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 said it was "delighted to see the first trade settled against it [BLNG3]. The Baltic's LNG assessments are being quickly adopted by this developing market as an accurate and reliable benchmark."

JGM said the management of the LNG freight price exposure is a key element of portfolio optimisation and risk management, but freight derivatives have been slower to develop than LNG and gas-linked financial products. 

Affinity confirmed that the trade was done over-the-counter (OTC) and executed bilaterally. Affinity makes money from LNG brokerage, shipping, JKM financial swaps and LNG bunkering.

The other BLNG swaps are BLNG1 for Gladstone - Tokyo, a 22-day round voyage for a 166,000 m³ vessel which has traded once; and BLNG2, which is a Sabine Pass-UK Isle of Grain 28-day round voyage, which has gone public but not yet traded. As with BLNG3, both can be adapted as appropriate to meet the needs of specific trades.