Asian Spot Prices for LNG and Other Energy Commodities

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 in Asia. We focus especially on the JKM price. This is of increasing interest as a result of 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. In addition, since imminent LNG exports from the US Gulf Coast may substantially disrupt historical pricing relationships between natural gas prices in different locations and the relationships between those prices and the price of oil, it is of interest to characterize the behaviour of LNG prices in Asia before such 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.

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