In 2019 Australia became the largest exporter of liquified natural gas (LNG) in the world. Growth in the market has been one of the fastest among fossil fuels, particular in Australia as the wave of local production projects built in the last six to eight years come online.
In the market’s favour is its proximity to Asia, where in conjunction with Australia’s supply growth has been the emergence of the Japan-Korean Marker (JKM) LNG benchmark, a pricing instrument published by commodity agency S&P Global Platts.
While not recognised as an official benchmark, JKM has quickly become the main pricing measure used in the Asian spot market. Launched only 10 years ago, the market was nascent for the majority of that time with little liquidity.
But as demand in Asia continued to grow, more shipments have come into the region - and prices have increasingly dislocated from the traditional benchmarks, including Brent crude. Thus sellers, buyers and traders have embraced the ‘Asian’ index.
Acceptance of the JKM marker is at a point where it "probably is" a quasi-official benchmark, gas market consultant Patrick Heather told Petroleum Economist in April – at least for now.
"Once you are established, you are established, it is very difficult to change a benchmark," he told the publication.
Established is perhaps underselling it. In the last two years JKM volumes for hedging have gone through the roof. In 2018 volumes increased 240 per cent year on year, from 50000 traded lots to 155,000. In February alone 30,000 lots were traded and there have been bigger months since.
At ANZ, we’re expecting that significant increase in volumes to continue. The JKM is poised to get even bigger.