Abaxx Technologies Inc. has seen active trading of its physically settled Gulf Coast LNG futures contracts since they were launched June 28 in what the company said is a strong sign of the market’s interest.
Bids and offers for Abaxx’s front month October United States Gulf of Mexico (GOM) contract started soon after launch and have come in on a daily basis since then, Chief Commercial Officer Joe Raia told NGI.
Raia said the early trades, which aren’t always common after launch, are partly thanks to the firms who helped Abaxx build the contracts. “...That’s really a testament to the product itself, the design of the product and our interaction with the trading community and the clearing firms too,” he added.
Abaxx listed the contracts after the launch of its Singapore-based exchange and clearinghouse last week – the first regulated futures clearinghouse launched in over a decade. Carbon futures contracts are also listed, while another for battery metal nickel sulfate will launch in the coming weeks.
Physically settled liquefied natural gas contracts for Northwest Europe and North Asia-Pacific also were launched, but haven’t traded yet.
Raia couldn't provide details on why the other contracts have not traded yet, but he did note that a number of clearing firms are in the process of finishing connecting themselves and their clients to the exchange. As they connect, he said, that creates additional opportunities for more market participants to trade more contracts.
The GOM trades are likely the result of ample liquidity in the U.S. Gulf Coast market. The United States is currently the world’s largest LNG exporter.
“When you look at a launch like this, and I’ve done so many of these over the years, do you want it to be like Black Friday when everyone comes running in the doors to buy TVs? No, you really want it to be a rolling launch,” said Raia, a former New York Mercantile Exchange executive who helped develop that exchange’s ClearPort platform.
“As we’re going through this now, more firms are onboarding, clearing firms are coming on board,” he added. “We’ll see the move to further participation in the markets happening, whether it’s LNG or carbon.”
For decades, the LNG market was dominated by rigid long-term deals that have only recently given way to more spot transactions as new buyers and sellers have entered the market.
Spot trades accounted for 35% of all LNG imports last year, according to the International Group of LNG Importers. But the super-chilled fuel is bought and sold on a wide variety of price indexes and terms across the globe and has no single benchmark to unify it in a way that Brent does for the crude oil market.
Onshore price hubs like the Dutch Title Transfer Facility (TTF) in Europe or the Henry Hub in the United States often do not reflect the dynamics of the waterborne LNG market. Moreover, the world’s most widely traded LNG futures contract, the Japan-Korea Marker (JKM), is a cash-settled contract.
Abaxx has argued that the lack of a global LNG benchmark has deterred investors from participating in the market because of the lack of a trusted forward curve.
It launched its LNG contracts to create more liquidity for price discovery, reliable hedging and risk management, factors that have become increasingly important in a highly volatile global gas market.
A physically settled futures contract requires that a commodity be delivered to a location or customer by a specific date, helping to address both price transparency and supply dislocation. A cash-settled contract is closed with a transfer of funds based on its terms.
Other efforts to address price transparency in recent years have failed to gain traction. CME Group launched physically settled U.S. LNG contracts in 2019, but those have not yet been traded.
European regulators also launched a price assessment and LNG benchmark for the continent last year that is not widely cited across the world.
Abaxx’s GOM October contract closed at $9.09/MMBtu after launch on June 28 and had gained three cents to finish at $9.12 on Wednesday (July 3). Abaxx has not publicly released trade volume.
TTF was trading near $11 over the next three months, while JKM was closer to $13 over that time. The Nymex Henry Hub futures contract was trading below $3 through October on Wednesday.
Raia said the first few days of trading on Abaxx have gone as expected. The exchange’s technology has worked well and it has not had any operational issues, he said.
“I think the most important part of the launch was making sure we had participants in the marketplace, traders on both sides, market makers, brokers.”
Full clearing and execution on the Abaxx exchange are available through StoneX Financial Pte. Ltd. and KGI Securities Pte. Ltd., while execution and broking services are available through Marex, Eagle Commodities, Evolution Markets, Salamander Broking, SSY, TP ICAP and Venture Commodities Partners, along with introducing broker, Sweet Futures.
