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Asian Spot Prices for LNG and other Energy Commodities

We investigate the relationship between the Japan-Korea Marker (JKM) price of LNG, which has become more important as spot trading of LNG has increased, and spot prices of Brent oil, fuel oil and thermal coal in Asia. We find that the JKM price appears to reflect inter-fuel competition in Asia. In this respect, it could be better than oil or other spot natural gas prices as a reference price for indexing long-term LNG contracts in Asia. The JKM may also be suitable for underpinning the development of an LNG pricing hub in Asia with associated derivatives markets.

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Keywords: Spot energy prices, LNG, Asia, Inter-fuel competition, LNG contract trades, Cointegration, Vector error correction models

DOI: 10.5547/01956574.39.1.aali

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Published in Volume 39, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.