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Japan to Start Releasing LNG Spot Price Data in May to Create Asian Benchmark

Japan to Start Releasing LNG Spot Price Data in May to Create Asian Benchmark
WSJ
Παρ, 17 Ιανουαρίου 2014 - 18:03
Japan is preparing the ground for the launch of the world's first futures contract for liquefied natural gas with two moves slated for May: the establishment of a spot LNG reference price and a joint venture with a Singapore firm to start an over-the-counter market for LNG derivatives.
Japan is preparing the ground for the launch of the world's first futures contract for liquefied natural gas with two moves slated for May: the establishment of a spot LNG reference price and a joint venture with a Singapore firm to start an over-the-counter market for LNG derivatives.

Buyers in Japan, which accounts for around 40% of global LNG imports, have over the past several years sought to gain more control over the supercooled fuel's prices, which are linked in long-term deals to the price of crude oil even though gas prices have fallen sharply compared with oil: Japanese pay about $16-$18 per million British thermal units versus $4-$5/mmBtu for the product in gaseous form in the U.S.

Part of the problem is that the spot market for LNG is relatively undeveloped. Japan 's government sees the creation of an accurate measure of the fuel's value as a necessary step in making progress toward launching futures contracts by March 2015, a goal it announced last April.

"What we are seeking is reliable market influence on LNG prices," said Ryo Minami, oil and natural gas director at the Ministry of Economy, Trade and Industry, or METI.

Moves to develop a basis for the LNG market come amid rising demand for natural gas in Asia--especially Japan, where consumption has risen sharply since March 2011, after the Fukushima Daiichi accident resulted in the shutdown nuclear reactors and increased dependence on fossil fuels--and in anticipation of increasing supply as several projects that have been i n the works in Australia start shipping LNG and as a glut of supply in North America, where thanks to a shale-gas boom there are pending plans for around two dozen LNG-export facilities.

METI plans to develop the spot LNG measure by averaging spot prices, denominated in dollars, that it will require Japanese buyers to report. Monthly data issued by the Ministry of Finance lumps term and spot prices together and are denominated in the yen.

"We have been collecting the data as a test, and we've seen spot LNG prices reflect supply and demand," said Takashi Ishizaki, the commerce, distribution and industrial safety policy group director at METI.

Commodity data company Platts currently provides the spot LNG benchmark for Asia with the Japan Korea Marker, its assessment of spot physical cargoes delivered to Japan and South Korea . Japan 's new spot reference price will be complementary to the Platts price, Mr. Ishizaki, said.

Takashi Saeki, chairman of Toho Gas Co., Japan 's third-largest gas utility, said, "It's better to have two benchmarks than one, and it can be used in price negotiations." Hiroshi Ozaki, president of Osaka Gas Co., the country's second-largest gas utility, agreed that METI's reference price could be helpful when discussing deals.

 Japan also sees the formation of an over-the-counter market as an important precursor to futures trading. The Tokyo Commodity Exchange established a joint venture with Ginga Energy Japan Pte, a unit of Singapore-based energy broker Ginga Petroleum, last autumn to set up an LNG cargo-swap matching service: Japan OTC Exchange will start OTC swap-matching services--essentially matching buyers and sellers of similar-specification cargoes to optimize costs for all involved--for oil products in April and LNG in May, said Yu Koyanagi, one of two representative directors at the new company.

"We have received positive responses" from trading firms about the service, he said, "they have been looking for a playing field where they can more actively trade spot LNG."

 Japan is moving steadily toward its goal of launching dollar-denominated LNG futures, METI's Mr. Ishizaki said, pointing to the spot LNG reference price and the new OTC venture as concrete examples of progress. He added that Japan would welcome cooperation with other LNG-consuming nations, such as South Korea and Singapore , to launch the futures market successfully.

 Japan 's LNG import volume and price have soared in the two years since the Fukushima accident, by 23% and 75%, respectively. It imported 87 million metric tons of LNG at Yen6.2 trillion ($59.5 billion) in the fiscal year ended in March 31, MOF data show. A ballooning energy price tag, partly due to a steadily weakening yen, has been a pivotal contributor to the country's trade deficit. Volume slipped 2.7% on year in the six months ended Sept. 30, but the bill continued to rise in yen terms, widening the trade deficit further.

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