First LNG freight derivatives trade concluded

Richard Fulford-Smith-led broking outfit Affinity yesterday detailed its involvement in the the first LNG freight swap settled against the Baltic Exchange LNG spot assessments. The trades involving Total Gas & Power and Glencore were arranged over-the-counter by Affinity Financial Products and executed bilaterally by the counterparties.

“With liquidity increasing in the LNG market in recent years, freight has come under the spotlight as participants look to manage their exposure to vessel spot rates,” said Benjamin Gibson, head of LNG derivatives at Affinity. “Using the Baltic Exchange’s rate assessments we are able to help clients benchmark their freight exposure and develop a forward market for hedging price risk.”

Last winter tight vessel availability pushed charter rates from an average $50,000 per day during the first half of the year to above $200,000 per day during November 2018. By March 2019 the Baltic BLNG1 assessment had fallen to almost $20,000 per day.

“As LNG traders seek to build trade volumes their exposure to this volatility in freight rates increases,” Affinity pointed out in a release.

The Baltic Exchange’s LNG rate assessment methodology uses submissions from independent shipbrokers to mark time charter equivalent rates for LNG carriers on certain, key trade lanes. This benchmark includes not only the headline rates for hiring the vessels, but also the highly important ballast bonus and/or position fees paid by charterers depending on market conditions.

Baltic Exchange chief executive Mark Jackson revealed yesterday that the next two Baltic LNG routes — USG/East Coast UK and USG/Far East – will go live later in the year.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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