An LNG swap is a financial derivative that allows participants to exchange fixed LNG prices for floating prices or trade relationships between LNG and other energy commodities. These swaps enable LNG buyers, sellers, and traders to manage price risk without physical delivery, providing flexible hedging tools for the global LNG market’s complex pricing mechanisms.

LNG swaps can reference various regional pricing benchmarks including Asian spot prices, European gas prices, or oil-linked formulas. These instruments help manage basis risk between different LNG markets and provide arbitrage opportunities for traders. The growing LNG swap market improves price discovery and risk management capabilities for this increasingly important global energy commodity.

Real-world example: A Japanese utility enters an LNG swap to pay fixed $12 per MMBtu while receiving floating Asian LNG spot prices, hedging against potential price spikes during peak winter demand periods.