Global LNG markets moving closer to LNG-based indexation: LNG 18Growing production capacity and rising spot liquidity are accelerating the commoditization of the LNG markets, b
ringing them a step closer to LNG-based price indexation, a panel of experts said Thursday at the LNG 18 Conference, held in Perth, Australia.
The delivered ex-ship (DES) markets in northeast Asia and the emerging free-on-board (FOB) market in the US Gulf Coast
are the key spot trading points that could dominate contractual price indexation in the LNG industry beyond 2020, panelists said.
Chaired by Cheniere's Andrew Walker and independent consultant David Ledesma, the panel was formed by Andree Stracke, Chief Commercial Officer with RWE Supply and Trading; Elizabeth Spomer, President and CEO with Jordan Cove LNG; Hiroki Sato, Vice President with Jera's Fuel Procurement Department; and Jonty Shepard, Chief Operating Officer for BP's Global LNG.
"We will have a clear Asian market index and actually we have it today; we have the [Platts] JKM," said Stracke. "Nobody believes in it but everybody is opening the papers in the morning to see where the JKM is. That is a good sign, that there is something behind, and I am sure we will develop this one."
"In the coal market, we have created markets where traders trade a product with great liquidity without any government support, and that is a very good proxy for the JKM or other Asian indexes, but it is really up to us, traders, producers and buyers, to be active in these markets," he added.
"With the spot volumes coming into Asia and being available in the market, I really believe we will see a much stronger spot market in the entire world, with very similar price levels across the oceans, and this is something that we are already seeing today."
Another LNG-based price indexation is likely to emerge in the US Gulf Coast, with plenty of potential FOB liquidity to come online, a wide range of active market participants, and no significant price difference among the exporting projects, panelists said.
"It is a very diverse market that could form the basis of a reliable index," said Shepard. "You can have a US LNG price index in the same way we have Brent crude, and a lot of the world's oil is priced against Brent crude."
For Jera's Sato, the establishment of a regional gas hub in Asia is the ultimate goal, as it would provide the flexibility, transparency and liquidity that the Asian and global markets need.
"The JKM spot price, or the cocktail of several kinds of indexes, for me are a transition towards the final goal of introducing a hub index," Sato said, adding that the location of that hub -- whether in Japan, China or Singapore -- is less relevant.
"Nowadays, Japanese buyers have a keen interest in the Henry Hub," which is an improvement from oil indexation, Sato explained. "The price of a product should be determined at a crossing point between the supply line and the demand line [of that product]."
But, looking forward, an Asia-based hub index is necessary, especially in the uncertain demand climate. "We need the flexibility and, especially in a liberalized market, our customers require a very transparent pricing mechanism."http://www.platts.com/latest-news/natural-gas/perth/global-lng-markets-moving-closer-to-lng-based-26418745