Platts was the first to launch daily LNG price assessments for cargoes trading in Asia, starting with Platts JKM™ in February 2009. As global supply and market participation grow, the uptick in liquidity of spot trading has seen the Platts JKM™ being increasingly used as a price reference for trades both in and outside Asia.
Spot trades generally represent around 20% of the LNG volumes traded yearly.
While the LNG market continues to be dominated by traditional 20 to 30-year long-term contracts, there is a marked movement towards shorter term and spot deals. Long-term contracts expose both buyers and sellers to market risks, as price fluctuations cannot be captured. Daily spot prices mitigate this risk by representing actual market value for the product bought and sold each day, making the inherent market volatility both visible and understandable.
New entrants into the LNG market are pushing for shorter term and spot deals, instead of the traditional long-term agreements. Therefore there is a need to establish a reliable, transparent and repeatable marker to reflect the fair and transactable value of the spot LNG market, a role the Platts JKM™ assessment serves.
With increasing non-associated gas production and shale gas development, the call to move away from oil-indexation, together with de-linking LNG prices from other commodities, becomes more prominent. As such, Platts JKM™ sees its presence continue to grow in the physical market. Alongside its gradual integration into physical contracts, Platts JKM™ has also been adopted in the financial markets, spearheaded by OTC derivatives trades in early 2011, as well as clearing by exchanges in 2012.