Eni, Trafigura Trade 1st Dubai, Kuwait, India LNG Futures
Eni and commodity trader Trafigura have traded the first LNG contracts of the DKI Sling LNG futures launched by Singapore Exchange for delivery to Dubai, Kuwait and India (DKI).
A total of 100,000mn Btu of February 2018 futures was traded and cleared at a price of $9.85/mn Btu December 8, Singapore Exchange said. The futures were brokered by Tullett Prebon and traded by Eni Trading and Shipping and by Trafigura.
The underlying price index, the DKI Sling, was developed in collaboration with Tullett Prebon. This is also the world's first LNG derivative based on an index representing delivered LNG prices in the Middle East and India region.
The LNG market is gradually moving away from long-term oil-linked contracts to increased spot market activity. The DKI region in particular has seen growing LNG demand as well as growing volumes of spot trades. The DKI Sling provides a benchmark and the developing liquidity in the futures market is important to ensuring that risk management tools are available to hedge exposures in this region, Singapore Exchange said.
"This is an important milestone for the growing LNG risk management market and an affirmation of the DKI Sling price index developing well as an accepted price marker. We have worked closely with the industry to develop this product and will continue to meet the growing need for price discovery and risk management tools to support growth in LNG trading and activity in the spot market. We thank Eni and Trafigura for their ongoing support, and Tullett Prebon in particular for their assistance in the development of the DKI Sling and the execution of this trade." William Chin, head of commodities, SGX said.
The DKI was designed to reflect a cargo of LNG delivered into the Middle East and India region with a reasonable and defined flexibility in destination, quality and cargo size. This is to enable participants to submit assessments based on the same assumptions and create a benchmark for the whole region. For example, a cargo into a single port in India could trade at a discount to DKI, while a cargo with full Middle East and India flex, including Pakistan would be expected to trade at a premium to the DKI Index.
According to Singapore Exchange, the decision to launch an index for the Middle Est and India region was to help buyers that are not active elsewhere in the global LNG market determine the fair price they should pay for LNG outside of a tender process; facilitate the development of a forward curve and corresponding financial market to improve the suite of risk management tools available to LNG market; capture the current and anticipated market growth in this region.
In addition to India, south Asia has seen emergence of new buyers such as Pakistan with Bangaldesh expected to enter the market soon. Even the Middle East has seen new entrants such as UAE, Kuwait, Egypt and Jordan.
New entrants in particular often ask for market price, which until now, has not been available to Middle East and India buyers, driving them towards the use of tenders, according to Singapore Exchange. “As such, in the year-to-date, we have seen over 70 buy tenders by end buyers in the Middle East and India region seeking over 100 spot LNG cargoes. However, there is now a transparent price index they can use as a benchmark.”