The powerful Japanese Ministry of Economy, Trade and Industry has held a third meeting on the possible setting up of an LNG futures market in Tokyo and other gatherings are scheduled over the next two months.
The meeting was on a consultative basis between officials from electric and gas utilities, trading and financing companies and other relevant industries.
The METI, which controls policy areas in Japan from industrial reform and trade policy to energy security, sees the establishment of LNG futures trading as a route to stable procurement of energy in terms of price hedging.
The LNG futures debate is linked to the whole Japanese policy of procuring cargoes at more economic prices compared with those sold in other regions. Japan's LNG cargoes are historically linked to oil prices, while the shorter term Atlantic Basin LNG market is mostly priced on the benchmark UK National Balancing Point natural gas price.
The price differential between Europe and Japan, for example, has been around $6 to $7 per million British thermal units during the Northern Hemisphere winter, leading to many European LNG cargoes being diverted to Japan for premium prices.
The listing of LNG futures, and the possible creation of a Japanese financial instrument for LNG on the Tokyo commodity exchange, could be achievable by 2014 or 2015, officials said.
The first meeting of the LNG futures study group was held on November 14, 2012, a second late last year and two more gatherings are planned before the end of March.
The study group has been considering the functioning of other natural gas trading markets in the world, including in the US and Europe, where LNG prices are much lower than Japan whose LNG shipments are mostly linked to the price of oil.
Possible forms of LNG futures trading include transactions that involve the ultimate delivery of a physical cargo on the spot market, and those based on net settlement.
The aim of the METI meetings is to provide hedging against future price risks while possibly leading to the establishment of price indexes that reflect the actual LNG demand in Japan and other Asian countries.
