The gas markets are volatile, even before the full onset of winter 2021 in the Northern hemisphere has begun. Low inventory levels combined with strong demand has seen record natural gas prices in Europe and liquefied natural gas (LNG) prices in Asia, which have tripled since the summer of 2021 to reach around $32 per MMBtu. Over the same time period, liquid petroleum gas (LPG) prices have also increased by around $300 per metric ton, partly caused by a growing number of chemical crackers switching feedstocks from LNG to LPG due to the high cost of natural gas. These events have all led to an increased demand for shipments to transport LNG and LPG internationally.  

The freight markets have become more active since the summer lull with greater volumes of hydrocarbons being exported from locations like the US and heading to Europe and Asia. The US Energy Information Administration (EIA) noted in its July 2021 report that LNG exports continued to grow in the first six months of 2021, averaging 9.6 billion cubic feet per day (Bcf/d), an increase of 42% from the same period 12 months earlier. The rising price of natural gas in Europe and Asia was one major contributing factor to the higher level of exports.

Strong export flows boost freight prices

Freight costs have been rising, in part due to the higher volume of exports between the US Gulf and Asia for LPG and from the US Gulf to Europe for LNG. The higher freight costs are reflected in the futures market. The front-month futures contract for LNG freight has surged to over $250,000 per day of time, a near tripling of the level seen earlier in the summer of 2021, CME Group data shows.

CME Group’s LNG and LPG Freight futures, which cover the key export routes from the US Gulf Coast to Europe (for LNG) and from the US Gulf Coast to Asia (for LPG), can be used to manage price risk in what has become an increasingly volatile traded market.

Chart 1: Strong export flows push freight futures higher

Rising demand for LPG has also pushed freight costs higher, in part due to stronger export flows on the back of firm cracker demand in Asia. The front-month futures contract for freight from the US to Japan rose from $72.50 per metric ton in July to just under $86 per metric ton in early October, an increase of 18%.

The long-haul freight markets from the US Gulf to Asia have been the most active, according to the US Energy Information Administration (EIA). The total volume of LNG shipments in the first half of 2021 was up by 42% compared to the same period 12-months earlier. The EIA data shows that around half of all US LNG cargoes were exported to Asia and a further 37% of all cargoes were brought into Europe. US LPG exports have also increased, putting further upward pressure on freight prices. The EIA data shows that around half of all US LPG cargoes are exported to Asia. Total LPG exports to Asia have increased 10% in the first half of 2021 compared to the same period 12 months earlier. Total exports to Asia reached 22 million barrels per month (equivalent to 1.7 million tons per month). This represents around 43 shipments per month.

US Gulf to Japan LPG freight continues to trade

To manage the increased price risk, traders have turned to the futures markets to hedge against rising freight costs. The increased volumes in September comes after the typically quieter summer months. The US Gulf to Japan LPG Freight futures, listed by CME Group, have traded steadily since launch in April 2021 as traders hedge the rising cost of freight. The LNG futures market has also seen a rebound in trading activity following the rebound in prices but crucially remain below 2020 levels.

In the futures market, Mont Belvieu has evolved into the global price benchmark for natural gas liquids trading of propane and butane. The CME Group Mont Belvieu Propane futures contract is one of the most liquid with an average daily trading volume of over 9,100 lots per day or 180,000 lots per month, based on the January to October 2021 volumes ‒ an increase of 12% year on year. Trade in Asia is typically indexed to the Argus Media Far East Index Propane futures where average daily volumes are around 300 lots per day, an increase of 20% year on year, CME Group data shows.

Chart 2: Gas Freight futures volumes rebound

Global gas prices diverge, prompting greater export flows

Global natural gas prices surged to historic highs in September and October ahead of the full onset of the winter period. The price levels are a five-fold increase from the same period 12 months earlier. Europe and Asia are bearing the brunt of the price increases, in part due to low inventory levels.

All the key natural gas markets can be traded using CME Group futures and options contracts. Henry Hub Natural Gas is the leading global benchmark sitting alongside Dutch TTF Natural Gas and Japan Korea Marker (JKM). Henry Hub Natural Gas futures are the most liquid of the natural gas benchmarks with average daily volume around 400,000 lots, year to date 2021.   

The front-month global LNG trade has expanded for the second consecutive year despite the COVID-19 pandemic onslaught on the demand side. The continued growth has been driven largely by US exports which hit historic records in the first two quarters of 2021, while exports from almost all other producing countries experienced a decline. The US LNG industry has exuberated resilience and flexibility despite the extreme market shock caused by unprecedented level of export curtailments and cargo cancellations during the COVID-19 pandemic. The USEIA data shows that LNG exports reached a record of just over 9.9 Bcf/day[1] in Q2 2021, up from just over 5.5 Bcf/day in Q1 2020. 

Chart 3: Dutch TTF and JKM prices hit record highs

Freight futures volumes are beginning to rebound from the summer lull with increased trading activity in the key export routes from the US Gulf to Asia and Europe. LNG and LPG exports remain strong, in part due to surging demand as buyers look to secure additional cargoes ahead of the peak winter season. Freight is expected to remain a key component to the LNG and LPG trade as trades look to manage their price risk in an increasingly volatile market.

[1] Converted to BCf per day using 1 BCF = 1,000 MMCf (and a 30-day month)

CME Group is the world’s leading derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). 
Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.

© 2024 CME Group Inc. All rights reserved.