A1088
Title: LNG bunker fuel hedging
Authors: Jiri Kukacka - UTIA AV CR, v.v.i. (Czech Republic) [presenting]
Frantisek Cech - UTIA AV CR, v.v.i. (Czech Republic)
Abstract: The purpose is to examine the hedging potential of natural gas and crude oil futures for liquefied natural gas (LNG) marine fuel. Despite the lower environmental impact of LNG compared to traditional marine fuels, the literature on LNG fuel hedging remains scarce due to the limited size of the LNG-fuelled fleet. The marine fuel hedging literature is extended to LNG by using daily and weekly futures contracts on Henry Hub gas, WTI crude oil, and the Baltic Dry Index to hedge LNG spot prices at major LNG bunkering ports such as Singapore, Rotterdam, and Barcelona from 2020 onwards. The empirical analysis combines classical hedging metrics, such as minimum variance hedging ratios, variance-based hedging effectiveness, and certainty-equivalent risk reduction, with a novel time-varying parameter vector autoregression decomposition of return and volatility connectedness. Results suggest that LNG marine fuel costs can be effectively hedged using a combination of futures contracts, with a static hedge often delivering similar results to more complex alternatives in volatile energy markets.
