Japan's Tocom starts trial listing of cash-settled LNG futures

Tokyo Commodity Exchange started April 4 a trial listing of a cash-settled LNG futures contract based in Yen for three years, using the S&P Global Commodity Insights' Platts JKM for settlement of spot LNG cargoes delivered ex-ship to Japan and South Korea for 15 contract months.

"The recent tight supply-demand condition of electricity and LNG in Japan highlighted the necessity of stable supply of energy at a reasonable price. The role of the futures market in hedging price fluctuation risks became more important under such circumstances," Tocom President Takashi Ishizaki said in a press release April 4.

S&P Global launched the JKM physical assessment in February 2009. It represents the daily tradable price of spot LNG cargoes delivered into Northeast Asia. S&P Global launched daily Asian LNG derivatives assessments in June 2012.

Market participants attributed the greater transactional liquidity to an increase in uncontracted LNG volumes, as well as a bigger need for forward risk management using financial instruments.

"The launch of LNG futures today is significant as it will enable LNG price formation during the business hours in Northeast Asia, where more than half of global LNG is imported," Ishizaki added.

Tocom also announced the change of the listing status of electricity futures from trial to permanent listing April 4, and the increase of the number of participants to 140 companies from 13 companies. Tocom launched the electricity futures in September 2019.