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First LNG freight swap settled under Baltic Exchange LNG index


The first LNG freight swap has been settled against the Baltic Exchange LNG spot assessments, as increasing market liquidity saw major LNG traders test the LNG freight derivatives trade.

The trades involving Total Gas & Power and Glencore were arranged over-the-counter by Affinity Financial Products LLP 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.”

Affinity pointed out that this first trade represents an important milestone in the development of an LNG forward freight market. With the Baltic Exchange set to release further LNG spot route assessments, Affinity sees more appetite for bilateral trades.

“Initial trades are all about testing the settlement mechanism. Now is the time to try things and see how they work. We have lots of interest in the Baltic's forthcoming Atlantic routes and a weighted average of routes to give a global LNG freight benchmark,” Gibson said.

Tight vessel availability had pushed charter rates from an average of $50,000 a day during the first half of 2018 to above $200,000 a day during November 2018.

By March 2019, the Baltic BLNG1 assessment had fallen to almost $20,000 a day. As LNG traders seek to build trade volumes, their exposure to this volatility in freight rates increases.

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