Intercontinental Exchange (ICE) has launched two new LNG futures: North-West Europe and South-West Europe, as the continent struggles to make sense of tumultuous gas pricing.
Historically, the Netherlands based TTF has acted as a de facto LNG price marker for Europe.
Given increased demand in Europe and the different countries’ varying capacity to handle LNG imports, TTF has come under fire. TTF applies to both pipeline and LNG gas deliveries.
The European Commission has set out plans for a new benchmark to allow prices to reflect these differences.
While European demand for LNG is strong, storage capacity is filling up fast. As a result, with temperatures still largely balmy, LNG prices have dropped in recent days.
Managing differences
ICE managing director of utility markets Gordon Bennett said European customers “need a futures contract to price LNG imports into Europe, and provide a means to manage the difference with the price of natural gas delivered via pipeline”.
European prices are high because of an “imbalance between supply and demand”, he continued. Bennett named Russia’s “significant reduction” in gas flows into Europe as driving this imbalance, in combination with the “physical capacity constraints across the European natural gas network”.
ICE’s contracts will be cash settled and based on Spark Commodities’ price assessments for LNG cargos. They will be priced in US dollars per mmBtu.
The company said it will launch the contracts on December 5, assuming regulatory approval.
Futures markets act to identify bottlenecks, Bennett said, such as the increased demand for regasification capacity.
“Futures markets are also a key risk transfer mechanism to reduce exposure to spot markets and thus a critical avenue for energy firms to manage their risk so they can maintain a stable source of energy to European societies,” he continue.
“ICE is ready to assist with developing an EU futures market based on the complementary LNG benchmark to be developed by the EU Agency for the Cooperation of Energy Regulators (ACER).”
Cash settled
Also planned to launch on December 5, ICE set out plans for French PEG, German THE and Italian PSV Natural Gas 1st Line contracts. These USD cash settled contracts should provide market players with additional flexibility to manage LNG import exposure, ICE said.
The organisation already offers physically delivered futures in these three markets, but priced in euros per MWh.
The European Union’s energy ministers, meeting this week, discussed setting a price cap on TTF.