Sources say China will offer LNG futures by next month.

People with knowledge of the matter said that China will offer domestically listed, yuan denominated liquefied gas (LNG), futures contracts by the end of next month. This would reduce importers' reliance on the West to hedge against price movements.

A person who declined to be named as they weren't authorised to talk to the media said that the?derivative? product would be listed at the Shanghai Futures Exchange.

ShFE and China Securities Regulatory Commission have not responded to our requests for comment.

The bourse wanted to increase its global presence by offering contracts that were internationally accessible. This would also challenge foreign benchmarks in pricing for commodities like?nickel or LNG.

The goal is to reduce the requirement for Chinese firms to establish physical contracts using foreign prices, while at the same time?creating an need for other countries to trade on ShFE.

Energy security is enhanced by the ability to manage prices between domestic entities using a local currency.

Last year, LNG shipments to China, which is the world's biggest importer, dropped due to U.S. Tariffs, weak industrial demand and strong domestic gas supplies.

The global LNG production is expected to increase this year, which will ease supply constraints that have existed since Russia invaded Ukraine in 2022. Analysts have stated that this could boost demand, which will in turn keep prices under control.

According to Rystad analyst Ole Dramdal, Chinese imports will likely increase 12% this year to 76.5 millions metric tons.

Price Dicovery

A senior executive from a global banking firm said that China is the largest buyer of commodities, but price discovery occurs on other markets.

Morgan Stanley, the investment bank, said on Wednesday that the U.S. policy of creating a multipolar world and the erosion of the dollar as a currency for trade is consistent with the idea of replacing dollars with contracts denominated in yuan.

China can also develop financial markets for LNG. The new contracts are denominated in yuan, so banks can commoditise risk by issuing LNG-linked loans and repurchase agreements, as well as asset-backed securities.

One source said that China hopes the initiative will also help it to challenge foreign pricing centers.

Henry Hub in the U.S. Henry Hub in?the?U.S. The Title Transfer Facility and Japan-Korea Marker in Europe are benchmarks along with the JKM.

Analysts said that international oil majors, Western traders and Middle Eastern exporters would all be interested in participating in the futures contract denominated in yuan.

For foreign companies to trade the contract they would have to establish a trading entity in China.

"China needs to have a benchmark which reflects the country's own supply and demand." JKM cannot do this as it caters primarily to Japan and Korea," stated a state gas dealer involved in contract negotiations.

We expect long-term supply to China to be based on Shanghai contracts rather than Brent oil. (Reporting and Editing by Christopher Cushing; Staff)

(source: Reuters)