Mitsubishi Backs JKM for Asian Market

The daily Asian LNG price assessment, Japan Korea Marker (JKM) published by SP Global Platts, is mature enough to replace crude oil prices as a reference for LNG prices in Asia, Mitsubishi Corporation COO Ryosuke Tsugaru told the 9th LNG Producer Consumer Conference on October 12.

The JKM is already used for physical and financial settlement, he said, and it is accepted broadly enough to be used as a near term solution owing to its growing use as a settlement reference point for physical and financial delivery, he said.

“Oil linked pricing contributed to the evolution of LNG market in Asia," he said. But as its share of the market rises, "it is natural to expect that LNG price will depart from oil as was the case in North America and Europe,” Tsugaru said.

He said that Mitsubishi supports the evolution of LNG pricing structure that could contribute to the growth of global LNG trade. LNG pricing is critical to allow penetration and sustainable demand growth. In emerging Asia affordable LNG pricing is a key to support displacement of coal and petroleum products by gas, Tsugaru added.

Mitsubishi expects the Asian market to rival today’s North America and Europe in size as trade with China is included. It could go from 340mn mt/yr to 610mn mt/yr by 2040, he said.

“JKM is not a universal solution but has started functioning as a ‘gas on gas’ index in Asia. The market should support the growth and improvement of JKM by active participation of producers and consumers in order to increase liquidity of Platts market on close,” Tsugaru said.

With the growth of LNG market in Asia, the market's needs are changing, he said. In mature markets, competitive ‘gas on gas’ pricing is being sought while in the emerging markets, oil linked price is often preferred for easier comparison with petroleum products. The Henry Hub price, given its less volatile nature, may find more spaces in Asia, for example in countries where power tariff is fixed, he added.

Tsugaru, however, argued that LNG price needs to provide incentive and confidence to producers and their lenders to ensure sustainable growth of LNG market in Asia. He said that hybrid pricing with a floor price may be an option.

“Increased supply availability provides liquidity in the market and reduces volatility, which benefits both producers and consumers,” Tsugaru said.

The gas market globally is now characterised by over-supply, which has proved to be a good time in the cycle to introduce price discovery and competition. The over-supply of gas in the UK gas market, triggered by the ending of the monopsony purchasing right of British Gas, began in the early 1990s as producers were able to trade gas with each other and consumers.

The first daily gas market report was launched in 1995, before the National Balancing Point was defined in the Network Code, a contract between gas shippers and the unbundled gas transmission system operator. Later, gas to gas competition spread to continental Europe, through the Interconnector UK pipeline that enabled spread trading between oil indexed gas sold on term contracts, and 'spot' gas for delivery over short or long periods.