South Korea awards short-term LNG contracts for 2025-2027 linked to JKM

Two South Korean importers, state-owned Korea Gas Corporation (Kogas) and gas developer and trader POSCO International, recently negotiated and concluded short-term tenders for 2025 to 2027, linked to JKM with double-digit discounts of 20-50 cents/MMBtu, according to industry sources.

In May 2024, Kogas issued request for proposal (RFP) documents seeking LNG supply for both short-term and long-term contracts.

One of the two tranches in the proposal is for short-term supply from 2025 to 2027, with a maximum quantity of up to 2.1 million metric ton/year. The pricing mechanisms for this tranche include JKM, ICE Brent crude oil, and Henry Hub.

Several market participants observed that offers linked to JKM were more competitive than those linked to Brent crude oil for the short-term tranche.

'The global LNG market could remain slightly tight in 2025 due to delayed new supply, resulting in higher Brent slopes, potentially around 17%," said an Asian trading source.

Platts JKM for September full-month average (FMA) was assessed at $12.778/MMBtu on Aug. 15, while October JKM was assessed at $14.356/MMBtu on Aug. 16, 2.6% higher than the equivalent 17% Brent crude oil price of $13.982/MMBtu on Aug. 16.

With JKM linkage, Kogas received offers at approximately 40-50 cents/MMBtu below JKM FMA, and the tender was likely awarded at these levels to 2-3 portfolio players, according to multiple sources.

Industry participants noted that such a substantial discount does not reflect market price levels under standard terms and conditions. However, Kogas provided sellers with various flexibilities, such as a range of discharging ports, extended delivery windows, and broader quality specifications, encouraging them to offer higher discounts.

Meanwhile, POSCO issued a tender on July 24 for a strip of six to eight cargoes to be delivered between September 2025 and August 2026 on either an FOB or DES basis. The tender, which was awarded on Aug. 14, included both JKM and Henry Hub linkages, several market participants told Commodity Insights.

According to sources, this strip tender is intended to bridge the contract volume gap with Tangguh, which expires next year.

For cargoes awarded with a JKM option, the discount was reported to be 20-30 cents/MMBtu against FMA.

'The restrictions on nominating larger vessels at Gwangyang terminal may require POSCO to pay slightly above market levels,' noted an Asian trader.

Additionally, two trading sources highlighted that if the cargoes originate from countries without a Free Trade Agreement (FTA) with South Korea, prices could be higher.

JKM benchmark pricing gains traction for short-term deals

As market participants anticipate a significant increase in LNG supply after 2027, with nearly 200 million metric ton expected to come online by 2030 from projects currently under construction according to Commodity Insights data, buyers are increasingly splitting their future demand into short-term contracts for 2025-2027 and long-term contracts starting from 2027 or later. This strategy aims to secure the most competitive pricing for both periods.

Several Asian buyers noted that sellers typically offer higher slopes for contracts linked to Henry Hub and Brent crude oil for 2025 and 2026.

"For short-term deals in 2025-2027, JKM linkage is clearly preferred, as buyers view it as a fair reflection of market prices," added another South Korean importer.