Intercontinental Exchange (ICE) is launching its first-ever US LNG futures contract in May, as exports from the US begin to rise sharply.
"Domestic and international market participants now have a risk-management solution that lays the foundation for a more effective means of hedging their spot and forward exposure," J.C. Kneale, ICE's vice president, North American power and natural gas markets, said in a statement.
With ample supply from shale drilling and fracking maintaining downward pressure on domestic prices over recent years, US gas producers are eager to export in the form of LNG to more lucrative markets. The growing LNG exports are propelling the US towards becoming a net exporter of gas, which is expected to happen later this year or in 2018.
The US started exporting gas from the lower 48 states in February 2016, when the first vessel left Cheniere Energy Sabine Pass export terminal in Louisiana. Five other U.S. LNG export facilities are currently under construction by units of Cheniere, Kinder Morgan, Sempra Energy, Dominion Resources and Freeport LNG. The companies expect them to all enter service by the end of 2019. By then the US is expected to be the world’s third largest exporter, behind Qatar and Australia.
"We believe the U.S. Gulf Coast is poised to become a key anchor for LNG prices,” said Shelley Kerr, S&P Global Platts' global director of LNG. "Counterparties are demanding that the new flexible supply from the US is underpinned by both price transparency and the means to hedge."
The main benchmark gas contract in the US currently the Henry Hub front month contract traded on Nymex, which competes with ICE, which also has contracts tied to the Henry Hub. The average volume in Henry Hub futures on NYMEX has averaged around 400,000 contracts per day over the past 200 days, according to Reuters.
ICE said the contracts would be cash-settled against the Platts LNG Gulf Coast Marker price assessment and use Platts-derived U.S. GCM LNG forward curves for daily settlement purposes. The curves will have an initial term of 48 months.