 Revisiting the pricing benchmarks for Asian LNG — An equilibrium analysisLingge Zhang, Dong Yang, Shining Wu and Meifeng Luo Energy, 2023, vol. 262, issue PA Abstract: This study investigates if the Japan-Korea-Marker (JKM) price is a feasible benchmark to replace the oil indexation in Asian liquified natural gas (LNG) trade. For this purpose, we propose an equilibrium pricing model for the LNG long-term contract (LTC) in Asia. Our model incorporates the risk-averse importer and exporter who optimize their risk-profit tradeoffs by deciding their LTC-spot trade portfolios. Using the model, we compare the pricing efficiency and the risk-profit tradeoff of an importer/exporter under different benchmarks (oil price versus JKM price). The results show that the JKM price is more efficient as an LTC pricing benchmark than the oil price. The JKM pricing benchmark is favored for both exporters and importers when they are low risk-aversion. In addition, we compare the performance of the JKM benchmark based on the CIF price term (i.e., the importer pays for freight charges) with that based on the FOB price term (i.e., the exporter pays for freight charges). We find that the freight liability has little effect on the pricing efficiency of the JKM benchmark. Keywords: LNG pricing; Oil indexation; Japan-Korea-marker; Equilibrium; Long-term contract; Risk sharing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:262:y:2023:i:pa:s0360544222023088 DOI: 10.1016/j.energy.2022.125426 Access Statistics for this article Energy is currently edited by Henrik Lund and Mark J. Kaiser More articles in Energy from Elsevier |
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