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How a US LNG Futures Contract Could Benefit Cheniere Energy

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US LNG futures contract

The US LNG futures contract recently announced by CME Group is expected to benefit Cheniere Energy (LNG) and other US LNG exporters. It will likely lead to better risk management and improved price discovery.

Currently, prices at Sabine Pass are linked to Henry Hub gas prices. CME Group said that it would develop a contract for physical delivery to the Sabine Pass terminal. Cheniere Energy currently operates four LNG liquefaction trains at Sabine Pass.

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According to Peter Keavey, the head of energy at CME Group Global, “This agreement with Cheniere is significant because it will be the foundation for developing a new LNG risk management tool for producers, consumers and traders around the globe, while further cementing the role of Henry Hub Natural Gas futures as the global gas pricing benchmark.” CME hasn’t shared any details about the launch’s timing.

Asian LNG prices

Meanwhile, Asian LNG (liquefied natural gas) spot prices remain strong. The contract for August delivery was $10.1 per MMBtu (million British thermal units), 80% higher than during the same time last year. Strong Asian LNG prices are driven by strong demand from China, large tender buying (especially from emerging and developing countries), and outages at some export plants. Cheniere Energy benefits from higher Asian LNG prices—one of the reasons behind the company’s increase in its 2018 guidance.

In the next article, we’ll analyze Cheniere Energy’s current valuation.

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