JKM reveals three surprises in 2018 as LNG’s commoditization accelerates

The LNG market continues to confound expectations. The past year saw strengthening of Platts’ JKM despite new supply, as well as de-correlation from other commodities, and flattening seasonality. Meanwhile, in 2017/2018, large volumes of more flexible, market-priced LNG supplies reached final investment decision and were agreed for delivery. These will start to flow into the market in 2023/2024, providing an additional medium-term catalyst for the ongoing commoditization of LNG. 1. JKM decoupled from other LNG pricing indexations In 2017 there was a relatively high correlation of global LNG and gas prices as increased supply of destination-flexible US LNG helped reduce the spread between JKM and NBP prices. JKM is the benchmark LNG spot price, reflecting LNG deliveries into northeast Asia, and JKM Derivatives are cash-settled against JKM. But expectations of continued strong price coupling, as US LNG ramped up further, proved misguided in 2018. JKM’s correlation to typical Brent- and Henry Hub-linked LNG contracts, as well as to the NBP, fell sharply.  Drivers included new US and Australian liquefaction trains suppressing JKM in the first quarter, while Brent stabilized with OPEC production discipline. Subsequently, during summer 2018, JKM rose far quicker than Brent due to proactive Chinese and South Korean… continue reading

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Source: CTRM Center

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