Positioning Henry Hub as global natural gas price benchmark
Chicago’s CME Group (ticker: CME) and Cheniere Energy (ticker: LNG) announced that the two companies are developing an LNG futures contract with physical delivery to Cheniere’s Sabine Pass terminal on the U.S. Gulf Coast.
Image source: Cheniere Energy investor update
“Through its Sabine Pass liquefaction facility, Cheniere is delivering Henry Hub-indexed natural gas to the world in the form of LNG,” CME Group Global Head of Energy Peter Keavey said in a statement.
“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,” Keavey said.
Cheniere’s Sabine Pass LNG terminal currently operates four trains capable of producing 18 million metric tons of LNG per year. A fifth train is under construction and a sixth is permitted. Sabine Pass capacity will rise to 27 million metric tons per year of LNG once these trains are operational.
Source: Cheniere Energy investor update
CME said that rising U.S. Gulf Coast LNG exports to Asia, South America and Europe, increase the need for buyers to hedge their price risk, moving LNG pricing away from regional benchmarks to an increasingly interconnected global gas market.
A physically deliverable LNG futures contract will allow the industry manage price risk more effectively, CME Group said.
According to Cheniere, its current LNG trading platform targets the sale LNG produced by its facilities at Sabine Pass and Corpus Christi in excess of the LNG sold from the projects under third-party long-term SPAs. Cheniere said it will purchase and sell other LNG volumes as available in the market. “LNG sales will be made opportunistically under flexible delivery and pricing terms, depending on the customers’ needs. LNG vessels have been chartered to support Cheniere Marketing’s sales made on a delivered-at-terminal (DAT) basis,” according to the company’s marketing page.
