By Bernadette Cullinane and Nye Hill  of Deloitte Australia

Countries including Singapore, Japan, South Korea, and China all have ambitions to become the LNG trading hub in Asia. As a key prerequisite to become a successful trading hub, countries are trying to create more transparent, trusted and reliable price discovery benchmarks. To achieve this, exchanges along with pricing agencies are launching indices to break the decades-long reliance on oil-linked pricing.

Currently, there are two established Asian markers: the Platts Japan Korea Marker (JKM) index and ICIS East Asia Index (EAX). The Platts JKM Index has been gaining ground as a benchmark primarily among European traders. An estimated 40% of the spot and short-term contracts are currently priced off it. The EAX is an index for the delivered ex-ship (DES) price into Japan, South Korea, China and Taiwan.

 Since 2015, the Singapore Exchange (SGX) has launched several new indices based on its Singapore LNG Index Group (SLInG) market. The first to be unveiled was the Free-On-Board (FOB) Singapore SLInG. A spot price index for LNG, it is calculated based on trading prices reported by more than 20 physical LNG players including major producers, consumers and traders of LNG. A notable characteristic of the SLInG methodology is that it is a sentiment based index, without editorial intervention.[1]

In September 2016, The SGX introduced the North Asia SLInG, a price index for the region. While the Singapore SLInG serves as a reference point for the fast-growing and developing South East Asian LNG market, the North Asia SLInG is expected to serve as a much-needed transparent and representative price for the traditional centre of demand.

SGX is also developing a new SLInG spot pricing index for the Dubai, Kuwait, and Indian LNG markets, which is scheduled to be launched in 2017.

South East Asia, China and India are expected to grow in importance as emerging Asian demand centres, while the traditional markets of Japan and Korea are expected to exert less weight in the future. Therefore, a broad Asian benchmark like the Sinagpore SLinG could eventually surpass the JKM as the primary Asian LNG price marker. This process will be accelerated if Singapore becomes the Asian LNG trading hub as anticipated.[2]

Elsewhere RIM Intelligence, the price-reporting agency, formally started maintaining historical price data for an LNG index in September 2014. The Rim DES Japan LNG Assessment is based on daily concluded deals, bids and offers in the Japan OTC Exchange (JOE) LNG market.

Growth of the LNG trading house

The LNG market has evolved significantly in terms of complexity and sophistication over the last 10 years. This has effectively opened the door to a new breed of market portfolio players, dedicated liquefiers, traders and resellers playing an intermediary role between the resource holders and the end users.

LNG was previously a tough market to enter given the market size constraints and restrictions imposed on contract terms. The entry of the US, completion of a wave of construction projects (particularly in Australia) and new supply developments elsewhere in the world have fundamentally changed the supply outlook of the industry, pushing the LNG market into surplus. There’s been changes on the demand side too with significantly greater buyer power leading to more flexible contract terms. Both developments have opened the door to the big commodity trading houses.

Participation of independent trading houses in short-term LNG shipping has increased from 27% in 2013 to 36% in 2016. Although the total delivered volume was less than 10% of the entire market in 2015, their presence is growing.[3]

Market drivers, including the emergence of new markets, growth of the LNG spot market, LNG oversupply, buyers demanding more flexibility, trader market expertise and knowledge, and affordable shipping have provided traders with the impetus and means to participate in the LNG market.

Commodity trading houses are adjusting their commercial models, positioning themselves along the LNG value chain. Infrastructure investments naturally incur fixed costs, but provide the opportunity for material upside through high asset utilisation. An alternative commercial model is to enter into a LNG purchase or supply position through a contractual agreement, but comes with the obligation to cover this position even at unprofitable levels. Traders with the ability to scale will probably combine both models, but with scale will come increased exposure to the shipping market.

Disruptive innovations in LNG trading

With the expansion of the spot LNG trading, new approaches and platforms are being experimented with. One example of this is the launch of the world’s first online LNG trading platform that allows LNG traders to buy and sell physical cargoes via online auctions and tenders. Launched by Perth-based start-up GLX Holdings, it is an attempt to move away from the current system of buying and selling tenders issued and bid on through emails, instant messages, and phone calls.

The platform will be available for live trading by mid-2017 and will promote price discovery and faster trading. If successful, the data trove of completed trades could lead to price indexing for different locations around the world. Those indices could then be used as the basis for trading of futures contracts and derivatives, possibly through other exchanges. Ultimately, it could make the LNG trading market, more liquid, transparent, and efficient.

Finally, nudging the status quo, blockchain technology is slowly finding its way into the energy industry. Two of Europe’s banking giants are in talks with commodity dealers to trade LNG based on blockchain. After successfully trialling crude oil cargo trade on a blockchain earlier this year, the banks are now looking to enhance the trading process of LNG. Blockchain works as an electronic transaction-processing and record-keeping system that allows all parties to track information through a secure network, with no need for third-party verification. This will allow trade from buyer to shipper to seller without masses of paperwork.

The global LNG industry is on a voyage of discovery and transparency. It may not be all smooth sailing, but it is sure to lead to a new shore.


[2] Deloitte research based on a survey of senior energy executives across Asia as part of its April 2017 Energy Trading Summit

[3] Poten LNG Shipping Opinion” by Poten & Partners:


Bernadette Cullinane is Deloitte’s Australian Oil & Gas Leader and Nye Hill is Senior Research lead in Deloitte Australia’s Market Intelligence team