JKM outshines other gas/LNG indices with lower basis risk, growing liquidity

Risk management experts consider the Platts JKM benchmark to have a lower basis risk compared with the deeper liquidity but higher basis risk in non-Asian gas indices, sources said.

With traded volumes and end-month open interest for the JKM derivatives reaching record highs in the first quarter of 2025, market participants said there is sufficient liquidity for JKM derivatives in the next 24 months to hedge a cargo-equivalent volume.

Typically a cargo is 3.4 TBtu, with the lot size on ICE at 10,000 MMBtu implying 340 lots equal to the volume of a cargo. So far in 2025, 352,490 lots of JKM derivatives have traded on ICE, CME and TOCOM, which is the equivalent of 1,036 LNG cargoes.

Platts JKM is a global LNG benchmark that reflects the value of cargo delivered to Northeast Asia. Platts is part of S&P Global Commodity Insights.

Beyond Northeast Asia, the benchmark is also used by companies in Southeast Asia to purchase cargo for deliveries in the spot market and as part of medium-term contracts. One of the major reasons companies prefer using JKM for their transactions in Asia is because of the lower basis risk when using JKM as compared to other pricing options.

The cash differential between JKM derivatives and the physical assessment for JKTC is typically low, with the average cash differential for JKM against JKM Balance Month Next Day at 1 cent/MMBtu between January 2024 and April 8, 2025.

Emerging markets

The basis risk is low for companies in Southeast Asia as well, which prefer using JKM or flat prices in their spot tenders. Companies such as EGAT, PTT, Gulf Energy in Thailand and Sam Miguel in the Philippines use JKM as a pricing basis for LNG cargo procurement.

Since 2024, the average spread between JKM and the Southeast Asia Marker was at 21.5 cents/MMBtu, Platts data showed.

Currently, the Southeast Asia marker does not have a derivative that settles against the price.

Elsewhere in South Asia, JKM would be a strong candidate when Indian companies eventually turn toward a floating price index for their cargo purchases, Indian sources said. This is because there is still limited liquidity in the WIM derivatives listed on exchanges such as the Intercontinental Exchange and the Indian Gas Exchange.

Some Indian natural gas traders and end-users already hedge their exposures on JKM basis. The domestic gas tenders that are linked to LNG prices in India use either JKM or WIM. Some traders use WIM for their sales to end-users as well.

Most recently, a natural gas deal for three months for a volume of 322,000 MMBtu was concluded on IGX linked to WIM as well.

"The degree of correlation [for WIM in India] with JKM is high, the basis risk is much lower and has liquidity for our purposes," an Indian trader said.

Basis Risk

One of the main reasons companies consider using JKM instead of a non-Asian gas hub price, such as TTF, is that JKM reflects the fundamentals of the Asian LNG market, while TTF reflects the fundamentals of European gas markets.

The Dutch TTF price is influenced by European policies, higher dependence on using LNG to replace gas and European weather factors whereas JKM is more reflective of demand, weather, and LNG quality conditions in the region.

Nevertheless, some market participants consider using TTF for LNG indexation globally because of the deep liquidity in its cash-settled futures that are listed on ICE.

The average daily traded volume for TTF futures is nearly 500,000 lots traded in March, ICE data showed. As a result, market participants consider the possibility of slippage low when they consider hedging by using TTF futures.

For January-September 2024, the JKM/TTF spread was on average nearly $1.03/MMBtu. However, the basis flipped and since January 2025, the average JKM/TTF was at minus 29.6/MMBtu cents.

If for instance, a buyer had reviewed the basis for January-September 2024 and held a view that basis would remain stable and had purchased cargoes in September for delivery in January-March 2025 linked to TTF, they would be paying significantly more than the fair market price.

This basis risk was glaringly exposed in 2022 when the JKM/TTF spread averaged at minus $8.09/MMBtu, dipping as low as minus $26.05/MMBtu at one point, while the NWE/TTF spread averaged at $8.50/MMBtu, reaching minus $29.55/MMBtu at its trough.

Looking ahead, the impact of the prevailing trade tariff war on global gas demand remains uncertain. However, a key factor remains: Europe needs to replenish its gas storages before the winter of 2025. As a result, the outlook on the JKM/TTF spread remains shrouded in uncertainty.

Liquidity and slippage

Due to sufficient liquidity in JKM derivatives markets, market participants face limited slippage when they try to hedge their exposure, multiple sources said.

"Typically, [from] now until January 2026 [there will] probably [be] zero slippage. [After that,] it'll be 1 or 2 cents and probably 3 or 4 cents on 2027 and 2028," an LNG broker said.

As of late March, end-of-month open interest for ICE JKM front-month futures had a notional value of $1.938 billion, 54% of ICE TTF's at $3.566 billion, according to calculations by S&P Global Commodity Insights. Open interest is often used as an indicator to gauge the liquidity and depth of futures contracts.

A Middle East-based derivatives trader said that while liquidity in Dutch TTF futures is deep, if someone used it to hedge cargoes, they would still be exposed to the basis risk and forex risk.

"The slippage is negligible in hedging JKM with 2.5-5 cents at [the] maximum seen 12 months. Even when you hedge TFU (the $/MMBtu equivalent of TTF) you see the same thing, so [there is] no clear difference to me and if you look at the TTF alone there is [forex] and basis risk," another European trader said.