Affinity arranges first Atlantic LNG freight swap between JERA and Vitol

LNG traders JERA Global Markets and Vitol have executed the first Atlantic LNG freight swap against The Baltic Exchange’s BLNG3 assessment in a bilateral trade arranged by Affinity Financial Products.

The BLNG3 assessment provides a freight rate benchmark for LNG shipments between Sabine Pass and Tokyo, Affinity said in its statement.

The benchmark is on a time charter equivalent basis with a panel of independent shipbrokers providing headline time charter rates and a ballast bonus and/or position fee assessment to give an effective rate paid by a charterer on round voyage terms.

“Following on from our initial trade in July when the Baltic’s BLNG1 assessment went live, we are very pleased to have been able to arrange a bilateral trade against the BLNG3 route,” said Benjamin Gibson, head of LNG Derivatives at Affinity.

“As the LNG market continues to commoditize, freight is now catching up with the cargo in terms of transparency and the ability to trade BLNG3 will become an important tool along with JKM and Henry Hub,” he added.

Sarah Behbehani, JERA Global Markets SVP LNG noted that the management of LNG freight price exposure is a key element of portfolio optimization and risk management, however LNG freight derivatives have been slower to develop compared to LNG and gas-linked financial products.

“Freight exposure arising from US LNG is of particular importance for the development of the market, given the US Gulf Coast’s position as a marginal source of supply across the Atlantic and Pacific basins,” Behbehani said.

Affinity confirmed that the trade was done over-the-counter (OTC) and executed bilaterally using an ISDA contract.

Gibson added that further bilateral trades will help develop the understanding and adoption of freight benchmarks within the industry.