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Natural Gas, LNG
March 13, 2025
By Suyash Pande, Gwen Teo, and Cindy Yeo
HIGHLIGHTS
Contract marks first 20-year LNG deal linked to JKM indexation
ARC supplies feedgas to Cedar LNG on JKM basis
ExxonMobil LNG Asia Pacific's LNG offtake agreement with Canada's ARC Resources for the supply of 1.5 million mt/year for Cedar LNG project is linked to JKM for the 20-year tenure of the contract, market sources told Platts.
On March 11, ARC Resources said that EMLAP would purchase all of ARC Resources' LNG offtake from the Cedar LNG project at "international LNG pricing".
The supply under the deal is expected to commence in 2028 for the duration of ARC Resources' tolling agreement with Cedar LNG, which is 20 years.
The development marks the longest LNG sales and purchase agreement (SPA) linked to JKM, the globally recognized LNG benchmark that reflects the price of LNG cargo delivered to Northeast Asia.
JKM, as a benchmark, is also used for pricing LNG and RLNG in markets globally, including Southeast Asia, South Asia, the Middle East, the Americas, and Europe.
ARC Resources did not respond to a request for comment while ExxonMobil did not provide additional details besides its comments from ARC Resources' press release.
A Singapore-based source said that the agreement was effectively pricing FOB Canada LNG as a netback using the JKM index.
ARC Resources has previously signed two agreements with Cheniere to supply natural gas for a cumulative amount of 280,000/day using Dutch TTF and JKM. These contracts will commence in 2027.
Other instances of JKM indexation in North American feedgas contracts and LNG SPAs are illustrated in the table below.
A European source said that the contract for offtake from the West Coast of Canada would avoid the Panama Canal transit costs and would be an efficient optimization for Northeast Asia requirements given the prevailing international LNG price in the region is JKM.
Cedar LNG has a nameplate capacity of 3.3 million mt/year, and the project made its final investment decision in June 2024.
In a profile of Cedar LNG, analysts at S&P Global Commodity Insights wrote that the project's volumes would largely be marketed in Northeast Asia, as the LNG facility will be located on Canada's Pacific Coast.
ARC is pricing the feedgas for Cedar LNG on a JKM basis to facilitate tying up the sales and purchase agreement with ExxonMobil.
In January, ARC Resources agreed on a deal to sell 0.2 BCf/d of feedgas to Cedar LNG for a 20-year period, equivalent to 1.5 million mt/year.
"Through Cedar LNG, ARC will pursue commercial marketing arrangements targeting Platts JKM pricing, increasing the Company's anticipated total exposure to internationally linked pricing," ARC had said in March 2023.
Quarterly filings by ARC Resources showed that the agreement by ARC Resources with Cheniere to supply 140,000 MMBtu/day starting 2027 was the start of ARC Resources into JKM exposure.
In its annual report of 2022, and the quarterly filings thereafter, ARC disclosed that the company's contract with Cheniere embeds a derivative as a result of the pricing formula.
"The agreement contains an embedded derivative as a result of the JKM pricing formula. ARC has defined the host contract as a natural gas sales arrangement with a Chicago Citygate price," the 2022 annual report said.
The fair value of the derivatives also reflects the estimated differential between JKM and Chicago city-gate forward pricing over the term of the agreement, the quarterly reports by ARC Resources noted.
The company regularly shares updates on the fair value of its derivative positions and unrealized gains or losses emerging from the differentials between forward pricing at the respective delivery points and the price indexations in its gas supply formulas.
The use of LNG indexation, such as JKM, in an LNG export project reduces the risks associated with price mismatches that could emerge due to the independent fundamentals of localized gas hubs and the global LNG market.
Weak LNG fundamentals globally are expected later in the decade, and subsequent lower spot LNG prices could lead to gas hub-linked contracts with fixed price constants for term buyers proving more expensive. Conversely, for sellers, this situation could change when LNG market fundamentals tighten, and the contracts using fixed price constant could result in these term contracts going out of the money against spot LNG prices.
The use of an LNG index for feedgas pricing, along with pricing long-term contracts based on the same index that reflects the spot market fundamentals of LNG for buyers, represents an important development in reducing the risk of price mismatches down the value chain.
For the global LNG market, the use of JKM for a 20-year sales and purchase agreement by one of the largest LNG portfolio companies signifies deeper adoption of JKM.
Platts assessed JKM for April at $13.437/MMBtu and the JKM derivatives for calendar year 2028 was assessed at $9.25/MMBtu at Singapore close, while the Gulf Coast Marker was assessed at $12.26/MMBtu on March 12.
Duration | Companies | Volume | Benchmark | Country |
2027-2042 | Woodfibre – BP | 1.95 MTPA | JKM | Canada |
2027-2040 | Trafigura – NuVista natural gas | 21,000 MMBtu/d | JKM | Canada |
2027- 2033 | Tourmaline- Trafigura | 0.5 MTPA | JKM | Canada |
2023-2038 | Tourmaline - Cheniere | 0.85 MTPA | JKM | Canada |
20 years | ARC Resources-Cedar LNG feedgas | 0.2 Bcf/day ≈ 1.5 MTPA | JKM | Canada |
15 years | Chesapeake Energy – Gunvor HOA | 2 MTPA (SPA signed for 0.5 MTPA) | JKM | US |
2028-2042 | Chesapeake Energy – Vitol HOA | 1 MTPA | JKM | US |
2027-2038 | Coterra – Vitol feedgas | 100,000 MMBtu/d ≈ 0.7 MTPA | JKM | US |
2020-2035 | EOG-Cheniere feedgas | 2.55 MTPA | JKM | US |
2020-2035 | Apache-Cheniere feedgas | 0.85 MTPA | JKM | US |
15 years | ARC Resources-Cheniere feedgas | 0.85 MTPA | JKM | US |
2024-2026 | KOSPO-Cheniere | <0.4 MTPA | JKM | US |