Challenges to JCC pricing in Asian LNG markets
Challenges to JCC pricing in Asian LNG markets / Howard Rogers and Jonathan Stern. Oxford Institute for Energy Studies, February 2014, 71 p. (NG 81)
Presentation (© OIES) :
For about four decades, international LNG trade in Asia has been based on the Japan Crude Cocktail (JCC) price mechanism. Little serious opposition had been raised to this form of pricing prior to the increase of crude oil prices above $100/bbl. The Fukushima nuclear accident in 2011 placed Japanese LNG importers in an even more difficult financial situation as they were forced to import increasing quantities of LNG at prices substantially higher than those of Europe, and 3-6 times higher than North America. Since 2011, there has been a rising chorus of complaints about the high price of LNG in the Pacific Basin, but a difference between those arguing that prices need to be reduced while retaining the JCC mechanism, and those arguing that the JCC mechanism is no longer appropriate and should be replaced. Over the same period, some new contracts have been signed based on a “Henry Hub plus” formula, which has opened up a discussion of future pricing options. This paper will examine possible alternatives to JCC pricing in different countries, and the region as a whole, the consequences of a change in the price mechanism, and how the transition may be managed during the course of the 2010s and beyond.