Market-based LNG pricing gains traction in long-term contracts for Southeast Asia: sources

The use of market-based pricing in the Southeast Asian LNG market appears to be on the rise, with two term deals signed this year possibly linked to Platts JKM LNG prices, according to market sources.

One of the two term deals was from Electricity Generating Authority of Thailand (EGAT), Thailand's state-owned utility, for 1.2 million mt for delivery over 2024 to 2027. EGAT issued the tender on July 11, with an initial deadline for bid submission on Aug. 10, seeking eight to 20 cargoes DES Map Ta Phut Terminal. The deadline was later extended to Aug. 24.

Multiple market sources said that EGAT awarded a total of 22 cargoes on JKM-linked basis with "significant discounts" to several companies including a Chinese LNG major, a global portfolio supplier and a Middle Eastern producer.

EGAT could not be reached for comment.

Another term deal that was heard linked to LNG pricing was between Gunvor and Hin Kong Power, a joint venture owned by Gulf Energy Development and Ratch Group. According to a statement released early September, Gunvor will supply Hin Kong Power with around 500,000 mt/year on a DES basis.

Gunvor did not immediately respond to requests for comment.

While JKM has been widely used in spot contracts in Thailand and Singapore, long-term import contracts in Southeast Asia remain largely linked to oil prices, with some linked to gas hub indexes, S&P Global Commodity Insights data showed.

The vast majority of commodity markets in oil, metals, coal and petrochemicals link term contracts to market benchmarks of the traded commodity. But LNG markets continue to adopt largely non-market-based pricing in term contracts, despite a liquid spot market, sources said.

However, LNG pricing continues to gain traction, with term contracts of one to three years duration signed for northeast Asia largely linked to the JKM benchmark.

JKM as primary price reference in Thailand and Indonesia

Thailand- and Indonesia-based market sources also cite the JKM benchmark as the primary price reference used by regulators in their countries in the process of approving spot trading and term contracts.

"Procurement of LNG with short-term contracts and spot contracts with a duration of less than five years must not exceed the JKM price adjusted with a constant value," the Energy Policy and Planning Office (EPPO), part of Thailand's Ministry of Energy, says on its website. The constant value is not disclosed but is believed to be correlated to market conditions.

In the Vietnam and Philippines markets, which are relatively new to LNG imports, buyers are closely monitoring LNG prices through JKM linkage before deciding on procuring more cargoes.

"We might consider buying on JKM going forward," a buyer told Platts, after witnessing volatile LNG prices especially in the past few months owing to Australian strikes.

In 2023, at least three spot tenders from Thailand's PTT Public Company Limited were heard to be awarded on JKM basis.