China’s ZhenHua Oil’s LNG deal with ADNOC priced JKM minus 10-30 cents/MMBtu

Chinese company ZhenHua Oil's sales and purchase agreement with Abu Dhabi National Oil Company (ADNOC) employs a hybrid pricing mechanism with eight out of the 12 cargoes per year indexed to the JKM, according to market sources.

The eight cargoes per year linked to the JKM indexation will feature discounts of 10-30 cents/MMBtu, sources said.

Additionally, sources noted that the deal provides the seller with the flexibility to determine whether to link at least four cargoes per year to JKM or crude oil indexation, based on the comparative crude oil slope and JKM prices over given periods during the contract's duration.

Sources added that the contract was signed with ADNOC Trading, the trading arm of ADNOC.

The contract is not necessarily tied to the offtake from the Ruwais LNG project due to its earlier commencement date, according to market sources.

The five-year sales and purchase agreement is structured on a delivered ex-ship (DES) basis, for the supply of about 800,000 mt, or 12 cargoes, per year of LNG starting in 2026, as reported by Platts on April 21.

Multiple market sources also said that the negotiations for these deals, including the other two agreements ADNOC signed with Chinese companies, took place in 2023-2024, with the announcements made in 2025 to coincide with the opening of ADNOC's office in China.

ZhenHua Oil did not immediately respond to requests for comment. ADNOC declined to comment on commercial matters.

JKM discounts

The discount of 10-30 cents/MMBtu to JKM reflects the flexibility in comparison to a standard trade in the JKTC region.

As JKM serves as the benchmark price for LNG cargoes delivered to Northeast Asia, various conditions contribute to this flexibility that typically offers discounts, including cancelation rights exercised by seller, flexibility for nomination of final delivery window by the seller, and cargo quantity range acceptable by the buyer.

One of the flexibilities that typically warrant discounts for buyers is the specification of a location-specific discharge port, such as DES China, rather than region-wide possible discharge ports like DES JKTC.

These discounts also reflect the divergences from standard specifications that are factored into the JKM price.

The average cash differential for physical cargoes trading in JKTC was a 1.03 cent/MMBtu above the JKM Balance Month-Next Day between January 2024 and March 2025, indicating that the 10-20 cent/MMBtu discount reflects flexibilities that are favorable to the seller.

JKM linked term contracts

Companies in the JKTC and Southeast Asia regions have increasingly adopted JKM indexation in term contracts with tenures of five years or less.

Most recently, Shandong Order Group signed a three-year contract with Glencore on a DES basis linked to the JKM, as reported by Platts.

Furthermore, various companies have entered strip deals for cargo deliveries in 2025-2026 that are also linked to the JKM. The companies include South Korea's Kogas, Japan's Kansai Electric and Taiwan's CPC.

For market participants, using JKM helps mitigate the risk of price mismatches which can arise when using non-LNG price indexes.

Platts assessed the JKM derivative for calendar year 2028 at $9.45/MMBtu at the Singapore close on April 24.

In comparison, ICE Brent crude futures showed an average value of $66.43/b for the same year on April 24, according to data from the Intercontinental Exchange.

Market participants are particularly attentive to the implied slope to crude oil, as it is essential for accurately reflecting the LNG forward curve.

However, it is important to note that if a deal is structured around a crude oil pricing index, prices of crude oil and LNG may diverge, influenced by the unique fundamentals of each market. Consequently, the slopes could experience fluctuations again.

Platts assessed JKM, the benchmark price for LNG cargoes delivered to Northeast Asia, for June at $11.18/MMBtu on April 24.