A New Idea for LNG Trade: Enhancing Market Competition through a Tanker-Based Trading System

Abstract

This study proposes a new idea for liquefied natural gas (LNG) trade based on Japan’s natural gas market. As part of their high rate of economic growth in recent decades, many Asian countries, including Japan, have constructed natural gas supply chains that are characterized by natural monopolies and vertically integrated companies. In addition, although Japan has a 50-year history of LNG imports, its domestic natural gas distribution mechanisms are not designed to create connections among markets. Therefore, domestic spot and futures markets have never operated efficiently. To promote Japanese domestic market competition, this study proposes a “tanker-based trading system” involving LNG tankers owned by a consortium of Japanese firms and supported by the Japanese government. This trading system would enhance the market efficiency of LNG-based operating countries. Thus, a spot market for natural gas in Japan and East Asia can be created using LNG tankers, and the natural gas trading system in Japan can play a role in spot markets similar to the Henry Hub and the National Balancing Point.

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