As natural gas markets become increasingly global, market participants are evolving their trading and risk management strategies to manage portfolios with regional and global exposure. To support this shift, exchanges are developing new futures and options contracts that meet the needs of the dynamic natural gas markets. At ICE, we’ve led the charge to become the premier exchange offering a full range of natural gas hedging and trading tools across international markets – a move that offers a unique view into the globalization of natural gas markets. Here are some of the trends we saw in the first half of 2017.
The markets for liquefied natural gas (LNG) are changing:
These are contributing to the globalization of natural gas markets. In the first half of 2017, traded ICE JKM futures volume rose over 300% as the contract’s global relevance grew, driven by changing market dynamics. We also launched the first U.S. LNG futures contract in May, the ICE Gulf Coast LNG futures contract, which provides buyers and sellers with an effective means of hedging, and is cash-settled against the Platts LNG Gulf Coast Marker, a value for pricing U.S. Gulf Coast LNG in the international market.
The strong open interest and volume growth we saw in ICE’s U.S. natural gas markets during the first half of 2017 suggests that market participants are taking a more focused look at regional markets, where supply and demand factors are coming into play. Regional markets often have constraints, such as limited pipeline capacity and infrastructure support, which in turn limit transportation of the commodity. Price changes in these types of regional natural gas markets can be driven by the availability of pipelines rather than the gas itself, which results in seasonal swings. Regional markets can be more volatile, and therefore drive increased hedging.
When it comes to existing benchmarks and the introduction of new products in European natural gas markets, there’s strong demand for access to liquid, exchange-traded contracts that provide for hedging and exposure to both global and regional markets. A few of the key dynamics we saw in the first half of 2017 include:
There are several factors behind the growing demand for natural gas liquids, including:
As these factors drive the demand for NGLs, we’re seeing increased activity in the NGL futures market as participants seek trading and hedging opportunities. NGL trading volumes continued to rise in the first of 2017, with24% year-over-year growth.
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We recently hosted Rusty Braziel, President & Principal Energy Markets Consultant at RBN Energy, and Jim Cramer, market commentator and host of CNBC’s Mad Money, at the New York Stock Exchange and asked them to share their outlook for U.S. and global natural gas markets.
Our reference data for exchange traded derivatives offering is a comprehensive set of data for products traded and cleared on ICE global exchanges and clearing houses. By automating the collection of data and normalizing it across the ICE repository, we provide a broad source of reference data for your portfolio of benchmark futures and options contracts.
The way liquefied natural gas (LNG) is bought and sold is changing. There are more sellers of LNG over a more diverse geography, and the threat of oversupply means that buyers are demanding more flexibility in the tenor of contracts. Furthermore, LNG indexation is evolving from its historical oil based benchmarks to include natural gas hub benchmarks.
New data is created every day on our markets, and this information is used in trading and risk management decisions throughout the lifecycle of a transaction, whether that spans microseconds or comprises a long-term hedging strategy.