JKM: Top 3 Considerations for Deal Leads
The Japan/Korea Marker (JKM) is the established spot price benchmark for physical LNG cargoes delivered into the Northeast Asian market. While its importance is universally recognized, its specific mechanics are frequently confused with other regional metrics, resulting in fundamental miscalculations. This lack of precision in understanding the JKM definition can expose companies to unnecessary financial risk.
Structuring robust deals is easier said than done. But understanding three key aspects of JKM that are frequently misunderstood is a good start. Let’s dive in!
[This article is not financial or investment advice, but provided for general information purposes only. All information is subject to change and should not be relied upon for any decision making. See Webpage Terms of Use.]
1. JKM is a Price Marker, Not a Hub Price
JKM is distinct from conventional gas price benchmarks because it is a price "Marker," not a "Hub" price. Gas Hubs are physical junctions (Henry Hub, Station 2) or highly liquid, interconnected virtual trading points (AECO, TTF, NBP). Settlements on a hub are location-bound, and pricing is typically derived from bilateral or exchange-cleared trading on that specific pipeline grid.
Historically, LNG was primarily transacted via long-term contracts indexed to crude oil prices (e.g., Brent slope and constant). Together with strict destination restrictions and a lack of physically settled LNG futures, this led to illiquid spot markets.
To create more transparency, the JKM price marker was established by Platts in 2009. Japan and Korea were the two largest LNG markets for decades, thus capturing “the” spot LNG price for those two markets aimed to capture overall pricing dynamics. The assessment process relies on a Market On Close (MOC) methodology, which combines transactional data (firm bids, offers, and confirmed trades) with survey information. Unlike a hub, the editors calculate a single benchmark price that represents the assessable value of the cargo for a specific forward delivery window.
2. JKM is a Price Blend of Multiple Markets
Whereas a Hub price represents transactions at a single, defined delivery location, JKM is a composite value representing Delivered Ex-Ship (DES) LNG across four major, non-pipeline-connected economies: Japan, South Korea, China, and Taiwan.
The inclusion of these four countries reflects the LNG demand aggregation of Northeast Asia. It’s a bit like averaging AECO, Station 2, Henry Hub and Waha prices to assess North American gas prices. Arbitrage should, in theory, equalize prices across these ports. However, due to practical constraints—such as berth availability, domestic regulatory regimes, and bilateral transactions—basis risk remains. JKM is an assessed regional average, which means that actual transactional price differentials between a cargo delivered to a Japanese port versus a Chinese terminal on the same day can be material, complicating physical trading and portfolio optimization.
JKM is thus an assessment of value for a product delivered into a region, not a price derived from a single, liquid exchange-traded location.
And then there is that third aspect.
3. JKM is an LNG DES Price
JKM is specifically assessed on a Delivered Ex Ship (DES) basis. Under DES terms, the seller retains control and is responsible for all costs, including freight (shipping) and insurance, until the cargo is discharged at the buyer's destination port.
This is a crucial point for cross-market comparisons. JKM is a measure of the commodity delivered to the vessel's flange. TTF and NBP, however, are onshore hub prices. They represent the cost of gas already injected into the pipeline network.
The fundamental pricing delta when comparing JKM to TTF often overlooks the full cost of regasification and terminal fees, which must be incurred to convert the DES liquid cargo into pipeline-quality gas that can be traded at TTF or NBP.
The Implications
The biggest takeaway is the critical importance of definitions when comparing global gas prices. When analyzing JKM-TTF spreads for deal making or hedging decisions, market participants must normalize the two metrics by accounting for:
JKM's regional complexity (DES price blend across four disparate physical markets).
The physical costs embedded in the DES vs. Hub comparison (regasification and pipeline tariffs).
Price volatility in the spread can be driven by true market fundamentals (e.g., shipping rates, regional demand) but may also be exacerbated by the inherent technical differences in the price mechanisms. For structured financing and increasingly common netback agreements, a precise understanding of JKM’s actual definition is essential to effectively manage commodity price exposures and basis risk.
This does NOT mean that JKM is problematic per se, or that JKM-indexed deals are inferior - it just means that anyone dealing with those agreements needs to understand what they are signing up for. At USD 12/MMBtu this may not be top of mind, but that may change when we return to a sub-ten world.
And if you want to learn more about LNG Contracting Strategy, join us on November 24th:
In an environment where even minor errors can lead to large financial exposure and costly loss of credibility, a strong technical foundation is essential.
Conducted in an interactive setting in Calgary, the session delivers the foundational expertise necessary for effective deal architecture and risk management:
Global LNG Market Dynamics
Economics & Pricing Formulas
Key Sale & Purchase Agreement Terms
Canadian LNG Value Chain Optimization
Top Mistakes to Avoid