2024 LNG futures traded volumes rise 49% YOY; Oct sets end-month open interest record

According to exchange data, record-breaking figures emerged for JKM LNG futures in 2024. End-month open interest and traded volumes reached unprecedented levels as market participants employed hedging strategies and engaged in paper trading to navigate price fluctuations and secure positions.

The traded volumes for the JKM LNG monthly futures and balance-month next-day futures cleared on the Intercontinental Exchange (ICE) rose by 48.5% year-over-year, reaching 968,543 lots, with each lot representing 10,000 MMBtu each. This figure represents the second-highest annual total recorded, following the 993,715 lots traded in 2021.

Furthermore, October 2024 saw the highest-ever end-month open interest at 131,678 lots, surpassing the previous record of 127,377 lots set in November 2021.

In addition to ICE, the Tokyo Commodity Exchange (TOCOM) recorded an all-time high traded volume for the JKM LNG monthly futures, 478 lots of 1,000 MMBtu each.

The total traded volumes cleared across both financial exchanges in 2024 equate to about 186.26 million mt or 2,935 LNG cargoes.

Apart from the futures contract, the JKM LNG options market also saw substantial activity, with traded volumes reaching 27,030 lots of 10,000 MMBtu each in 2024, an increase of 84.38% year over year. Industry participants said this increase was driven by an influx of new market entrants and the growing sophistication of risk management techniques.

The highest end-month open interest for JKM LNG options was recorded in July at 14,299 lots. This figure is an increase of 85.12% from the previous year's high of 7,850 lots recorded in May 2023.

Mirroring the upward trajectory observed in the futures market, the cargo market recorded a total of 216.96 million mt of LNG imported into the Japan-Korea-Taiwan-China (JKTC) region, reflecting a slight year-over-year increase of 3.59%, according to data from S&P Global Commodity Insights.

Traded volumes in December decline amid holiday lull

In December, traded volumes for JKM LNG futures cleared on ICE fell to their lowest level of the year as traders scaled back their trading activities during the holiday season.

LNG futures traded volumes on ICE totaled 49,404 lots in December, equivalent to about 9.5 million mt or 150 LNG cargoes. This volume represents a 10.48% increase year over year but a 46.16% decrease month over month.

End-month open interest for the JKM LNG monthly futures and balance-month next-day futures reached 126,727 lots on ICE as of Dec. 31, as per exchange data. This included 126,025 lots for the JKM LNG monthly futures and 702 lots for the balance-month next-day futures.

Alongside ICE, TOCOM reported traded volumes for JKM LNG futures at 140 lots in December, a decrease of 37.8% from the month earlier.

The spread between the JKM and NWE derivatives prices significantly narrowed by the end of December primarily due to supply uncertainty in Europe.

The spread between the front-month JKM derivatives and the front-month NWE derivatives narrowed from 53.3 cents/MMBtu on Dec. 1 to parity on Dec. 31, Commodity Insights data showed.

As the expiration of the Russia-Ukraine gas transit agreement approached on Dec. 31, bullish sentiment grew, particularly as no alternative arrangements were established before the deal's expiry.

Europe was also seeing a rapid decline in its underground gas inventories due to colder temperatures. Gas inventory levels were reported at 68.83%, according to the latest Aggregated Gas Storage Inventory data on Jan. 9. The figure is 15.31% lower than the 2024 level and 14.32% lower than the 2023 level.

Meanwhile, slowed market activity and weak demand persisted across the JKTC region in December, as mild winter temperatures and the holiday season contributed to the demand lull. Despite occasional cold snaps, high inventory levels dampened additional buying interest, leaving end-users on the sidelines.

The Platts JKM was assessed at $14.875/MMBtu on Dec. 31, reflecting relative stability compared to Nov. 29, when it was assessed at $14.890/MMBtu.

The East-West LNG arbitrage remained closed throughout December due to weak demand in Asia and narrowing JKM-NWE price spreads.

The Platts assessed East-West arbitrage value was marked at an average of minus 88.6 cents/MMBtu in December, indicating that traders would gain greater margins transporting US-sourced cargoes into Europe rather than Asia after accounting for the JKM-NWE price spreads, freight costs and voyage times.