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LNG traders and others return to Henry Hub hedging amid Dutch TTF and Asian JKM contracts surge

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The Intercontinental Exchange, the US-based operator of trading in commodity and financial markets, said ICE’s North American gas complex and natural gas futures hit an open-interest record of 18.5 million contracts during this current second quarter of 2020 as trading in European and Asian LNG derivatives also jumped.

“In ICE’s North American gas complex, dynamic US shale production has stimulated activity,” said the Atlanta, Georgia-based company.

“With futures open interest at record levels, up 30 percent year-over-year, market share has increased as commercial traders return to Henry Hub-related hedging in response to increased volatility in the North American market,” ICE explained.

These derivatives are purchased and sold by parties such as traders, oil and gas companies and utilities as hedges against rises and falls in physical resource prices.

At the same time as new highs are recorded in North America, ICE said the globalization of natural gas is propelling the growth of the ICE Dutch Title Transfer Facility (TTF) indicators for LNG shipped to Europe and the Japan-Korea Marker (Platts) for Asian spot LNG cargo futures.

ICE owns 12 regulated exchanges and platforms and its best-known subsidiary is the New York Stock Exchange.

The platform operator stated that the Continental European TTF and the Asian JKM are now “benchmarks relied on by commercial participants” around the world.

“As uncertainty has been rising in both supply and demand dynamics across the world, these traders are increasingly utilizing the breadth and depth of liquidity in ICE’s natural gas and oil benchmarks to help manage risk and optimize their natural gas portfolios,” ICE stated.

As a result, ICE said that open interest in TTF futures and options has increased by more than 70 percent year-over-year, while JKM futures and options open interest has more than doubled year-on-year.

In May 2020, the JKM hit record open interest of more than 100,000 contracts.

“The momentum behind the ICE TTF contract is driven by Europe’s unique role as the global balancing market for LNG which is cementing its utility as a risk management tool for customers to hedge their natural gas price risk,” ICE explained.

“This is leading TTF to become increasingly internationalized, while at the same time, the record growth in the use of JKM futures reflects its increasing prominence as Asia’s natural gas benchmark,” added the markets operator.

“We are witnessing TTF evolve into the global benchmark for natural gas, similar to the critical role Brent plays in pricing global oil markets,” said Ben Jackson, President of ICE.

“The momentum behind ICE’s gas benchmarks is attracting more and more participants who are using these benchmarks to manage their exposure to risk at this volatile time,” added Jackson.

ICE’s global natural gas complex spans trading hubs from the US and Canada to Europe and Asia, underpinned by an offering of more than 600 financially and physically-delivered contracts.

“Open interest in ICE’s US Basis contracts, which are used to manage exposure to natural gas at different delivery points throughout North America, set a series of records during April and May, and hit a new high of more than 10.1 million contracts on May 1, 2020,” said the company.

“ICE offers 60 different basis locations to trade, enabling customers to mitigate their risk at locations across North America,” it added.