Japan to launch world's first LNG futures by March 2015

03/29/2013

TOKYO, March 29 (Reuters) - Japan is planning to launch the world's first futures market for liquefied natural gas by March 2015 in a move that will help the top buyer of the fuel cut its import costs, the trade ministry said on Friday.

LNG is expensive in Asia <LNG-AS> at more than $15 per million British thermal units (mmBtu) as it is linked to oil, while a boom in U.S. shale gas output has pushed down prices there to just over $4 per mmBtu.

Japan, which consumes about a third of the global LNG demand, has seen its imports soar after the devastating Fukushima crisis in 2011 crippled its nuclear power sector. It paid a record 6 trillion yen ($63.82 billion) for overseas purchases of the fuel last year, up 25.4 percent from 2011.

The country aims to establish a cash-settled LNG futures market at Tokyo Commodity Exchange to give importers, including power utilities and city-gas suppliers, a chance to hedge risks and try to break its reliance on oil-linked pricing, a trade ministry official said.

Japanese firms -- including Inpex, Mitsubishi Corp , JX Nippon Oil & Energy, Tokyo Electric Power Co and Tokyo Gas -- and the trade ministry have reached a basic agreement on setting up the LNG futures market, he said.

Japan is hoping to launch an accessible market for major Asian buyers including South Korea and Taiwan, and will consider asking exchanges in Singapore and the United States to establish similar LNG futures markets in their nations, the trade ministry official said.

To boost liquidity, Japan aims to equip the futures - which will trade in U.S. dollars - with a Exchange of Futures for Physical function that would allow a physical delivery to settle positions if market participants wish, just like U.S. crude and London Brent futures.

The country will consider setting up a physical-settled LNG futures market in the future, trade ministry sources said.

($1 = 78.6100 Japanese yen) (Reporting by Osamu Tsukimori; Editing by Himani Sarkar)



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