Asian Spot Prices for LNG and other Energy Commodities

Abstract

We investigate the relationship between the Japan-Korea Marker (JKM) price of LNG, the price of Brent oil, and spot prices of fuel oil and thermal coal imported into Japan, South Korea, China, and Taiwan. We are especially interested in understanding the behavior of the JKM price and how it may reflect competition between fuels in Asia. The increasing proportion of spot and short-term trading of LNG, together with proposals to develop an LNG pricing hub in Asia with associated derivatives markets, have increased the interest in understanding how the JKM price behaves. It is also widely anticipated that imminent LNG exports from the US Gulf Coast to Asia and Europe will substantially disrupt historical pricing relationships between natural gas prices in different locations and the relationships between those prices and the price of oil. It therefore is of interest to characterize the behavior of LNG prices in Asia before these disruptions occur. Finally, our analysis has implications for the suitability of the JKM price as an alternative to oil or other spot natural gas prices for indexing long-term LNG contracts.

Value of long-term LNG contracts: A theoretical and empirical study

“…Especially for countries heavily relied on LNG imports, considering that short-term trading of natural gas has transaction volume risks, price risks, and infrastructure risks, short-term efficiency is not sufficient to guarantee a well-functioning long-term market, these countries are willing to forgo some flexibility in favor of supply security (Mazighi, 2004;Ruester, 2009;Abada et al, 2019). Therefore, spot volumes of LNG may continue to grow in the future, but there will eventually be an upper limit to the ratio of spot to long-term contract transactions (Hartley, 2015;Nikhalat-Jahromi et al, 2017a;Alim et al, 2018). Yet long-term contracts will have to evolve further to fit the new gas market environment.…”

“…The average price of imported PNG is calculated by the total imports and expenditures of PNG announced by the General Administration of Customs, about 5.92 $/MMBtu. The JKM published by Platts is the most widely quoted measure of spot LNG prices in Asia (Alim et al, 2018). Thus, we chose JKM to reflect the price of short-term LNG, and JKM was about 9.76 $/MMBtu in 2018 (BP, 2019).…”

Debt and Optionality in U.S. LNG Export Projects

“…6. See for example, Villar and Joutz (2006), Brown and Yucel (2008), Hartley et al (2008), Alim et al (2018), but for a somewhat contrary view Ramberg and Parsons (2012).…”

Investor Attention to Fossil Fuel Divestment Movement and Stock Returns

“…Second, in accordance with the literature on energy stocks (e.g., Broadstock et al, 2016;Rahman and Serletis, 2019), we also consider the weekly changes in fossil fuel prices as additional control variables. To calculate changes in coal ( ÄCOAL ), gas ( ÄGAS ), and oil ( ÄOIL ) prices, we use the weekly spot price for ICE Newcastle coal (e.g., Alim et al, 2018) and the weekly spot price for Henry Hub gas (e.g., Arora and Lieskovsky, 2014) and Brent crude oil (e.g., Guesmi et al, 2018;Abdel-Latif et al, 2020), respectively.…”