TOKYO: The Tokyo Commodity Exchange (TOCOM) on Monday launched liquefied natural gas (LNG) futures in a trial listing as growing volatility in the spot market increases the need for power generators to hedge risk.
TOCOM, a unit of Japan Exchange Group Inc (JPX), also upgraded the status of its electricity futures on Monday to a permanent listing from a trial listing.
“We want to offer opportunity for Japanese power generators to fix their margins by hedging price fluctuation risk on both the fuel purchase and the electricity sale sides,” TOCOM general manager Kosuke Araki told Reuters.
Price volatility has intensified since the Russia-Ukraine conflict and associated Western sanctions directed at Moscow. The trial listing for the yen-denominated LNG futures contract based on the Japan-Korea-Marker (JKM) price for LNG assessed by S&P Global Platts is set for three years.
The most active June contract on LNG (Platts JKM) Futures hit an opening price of 4,200 yen ($34) per metric million British thermal units (mmBtu) in early Monday trade, near Asian spot LNG prices of $35 per mmBtu. Only one trade was settled during the day session on Monday, according to TOCOM’s website.
“We hope major Japanese power generators and trading houses participate in our LNG futures trading to help attract global traders and suppliers to also join,” TOCOM’s Araki said.
The electricity futures were listed in September 2019 to help power retailers to hedge price volatility risk after liberalisation of the electricity retail market in 2016. Trading volumes on the JEPX power wholesale market have grown rapidly as prices have fluctuated sharply.
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