The new Japanese LNG strategy: a major step towards hub-based gas pricing in Asia
The new Japanese LNG Strategy published in May 2016 envisages the creation of a liquid market and an international LNG hub in Japan. This promises to radically change the traditional JCC (crude oil) based pricing system in Japan, but also potentially in the Pacific Basin as a whole. But the path to hub creation and hub pricing in the early 2020s envisaged by the Strategy will not be straightforward. Non-US LNG projects starting up in the 2016-20 period have JCC-linked prices. US projects have offtake agreements which envisaged an Asian `premium’ to Atlantic Basin prices which has now disappeared. In contrast to `international cooperation’ envisaged by the Strategy which would see buyers and sellers agreeing to change the commercial terms of long term contracts, conflict could be a more likely outcome.