Japan launched on Friday its first trading market for liquefied natural gas (LNG) in order to set a benchmark LNG price that would reflect the actual LNG supply-demand balance.
At least 17 major Japanese utilities and trading firms, including Tokyo Electric Power, Mitsubishi Corp., have participated in the market run by Japan OTC Exchange.
The market was approved by Japan's Ministry of Economy, Trade and Industry on Thursday, which has been pushing for creating an LNG futures market here. Lowering LNG procurement costs is one of the ministry's top priorities, as Japan, the world's largest LNG importer by volume, has purchased LNG at prices about four times higher than those in the US.
Japan's bill for LNG has been increasing as utilities have boosted imports of LNG for thermal power generation following the radiation accident in March 2011 at the Fukushima Daiichi nuclear power plant. The country buys about 80 percent of its LNG imports through a system that grossly distorts LNG prices on the high side.
The prices Japan pays are based on long-term contracts linked to crude oil prices.
In the US and UK, which have abundant sources of natural gas, LNG prices are determined by the overall natural gas market.