Tokyo Commodity Exchange, Inc, has announced that it will launch Liquified Natural Gas Futures on April 4, 2022.
With the start of LNG futures, traders will be able to trade a series of energy products, including crude oil futures and petroleum products futures such as gasoline, heating oil and kerosene, thereby creating a one-stop trading environment for electricity and for the fuels required for electricity generation.
The TOCOM LNG futures contract is denominated in Japanese Yen and is cash-settled without delivery of the physical underlying.
The contract refers to the Japan / Korea Marker (LKM) spot price index.
JKM is the Northeast Asian spot price index for LNG delivered ex-ship to Japan and Korea, assessed by S&P Global Commodity Insights (formerly S&P Global Platts). This price reflects not only the cargo delivered to Japan and Korea, but also the cargo delivered to Taiwan and China. Northeastern Asia is the world largest LNG consuming region. More than half of the global LNG import volume is shared by Japan, Korea, Taiwan and China.
The contract size is 1,000 mmBtu, which is 1/10th of the CME and ICE contracts. The trading months are the consecutive nearest 15 months and trading hours are 8:15-15:15 (day session) and 16:15-18:00 (night session) in JST.
The Final Settlement Price is the average Platts JKM price during the period lasting from the 16th two months prior to the contract month until the 15th of the month preceding the contract month.
LNG is widely used as a power generation fuel and as city gas in Japan. LNG plays an important role in the energy mix as an environment-friendly fossil fuel which enables stable and efficient power generation.
In international trade, LNG is the world's fourth largest commodity market after crude oil, gold, and iron ore. Its market size is expanding and is expected to continue growing in the future.
In Japan, the cabinet has confirmed its 2017 strategy stating that the government would “actively work to ensure the smooth listing of electricity and LNG futures." Accordingly, TOCOM launched electricity futures trading in September 2020, while major power generators had requested a one-stop environment to enable electricity, crude oil and LNG trading since the planning stage.
TOCOM CEO Takashi Ishizaki made the following comments:
“LNG contributes to reducing environmental impact and is becoming increasingly important as a key low-carbon energy source in the transition to a decarbonized society.
The size of the spot market has expanded, partly due to a surge in Chinese imports. Price fluctuations have also become much larger than in the past due to heightened geopolitical risks. LNG futures are undoubtedly becoming increasingly important as a price hedging tool.
At the same time, TOCOM LNG futures will enable the trade of spark spread with fuel needed for electricity generation, therefore, I believe that it is important to position LNG futures as a vehicle linked to electricity futures. Potential users of spark spreads include electricity and gas utilities and LNG importers. Also, as TOCOM LNG futures will be effective for arbitrage trading between ICE and CME LNG futures, we are expecting domestic and overseas energy traders to take part in the TOCOM LNG futures market as liquidity providers."