Affinity Arranges First LNG Freight Derivatives Swap

UK shipbroker Affinity Shipping announced on July 17 it has arranged the first LNG freight derivatives trade settled against the London-based Baltic Exchange’s LNG spot assessments.

The trade was made between France’s Total Gas & Power and Swiss-based commodities trader Glencore and handled over-the-counter by Affinity’s financial products unit. As the LNG market grows and becomes more liquid, traders are seeking to hedge risks linked to charter rates.

“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 Affinity’s head of LNG derivatives Benjamin Gibson in a statement. “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.”

Charter rates – a key component of spot LNG trade – soared from an average of $50,000/day in the first half of last year to $200,000/day in November, as a result of tight vessel availability. By March, the Baltic BLNG1 assessment had declined to nearly $20,000/day. As trade volumes expand, traders' exposure to volatile freight rates increases, Affinity noted.