Need for Hedging LNG, Interesting physical vs. financial Futures Mix on JKM





Hedging has lagged in the LNG business for quite some time due to its historically vertically integrated history. With regas facilities required on the consumer end and liquefaction facilities (5x the cost of regasification), the industry originally was fully integrated in "trains". While slow to react, the LNG industry has developed. A more developed stage in hedging would be to fix the actual transportation costs (seperate from the commodity costs). However this can be accomplished by longer-term chartering, a form of hedging. While the Bloomberg author seems to mix up hedging commodity with hedging transport, the point is taken.
(Bloomberg) reposted by Scott Shields Houston -- A rally in the cost of chartering liquefied natural gas vessels on the spot market has highlighted the lack of tools available to traders to hedge against volatility.
The market for the fastest-growing fossil fuel is expanding quickly, with cargoes changing hands in increasingly short-term deals the way the crude oil trade matured two to three decades ago. But while physical trading is expanding rapidly, the paper market with derivatives and other financial instruments has lagged.


read the rest of the article:
https://www.morganshields.com/post/spikes-in-lng-shipping-costs-expose-need-for-hedging-tools
Location: Katy, TX, USA

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