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Estimating the price premium of LNG in Korea and Japan: The price formula approach

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  • Choi, Gobong
  • Heo, Eunnyeong

Abstract

Focusing on the price premium, which reflects the negotiation power of exporting and importing countries, this study empirically investigates the liquefied natural gas (LNG) price formula for Korea and Japan. Applying the state-space model and Kalman filter to the price formula adopted in the LNG contracts in the Asia–Pacific region, this study estimates the long-run price formula and time-varying premiums on the LNG import prices by trade routes, from Qatar, Oman, Indonesia, and Malaysia, to Korea and Japan. Furthermore, this study also discusses the differences between Korea and Japan and the event-based changes in the price premiums, namely, the appearance of Russia as a new supplier to Korea and Japan in April 2009, and the Fukushima nuclear disaster in March 2011. The estimation results show that the appearance of a new supplier does not always lead to a decrease in the premium. In addition, LNG importers in Northeast Asia should pay attention to demand and supply in Europe as well as Asia because Northeast Asia and Europe share the same Middle Eastern exporting countries. Furthermore, Korea, Japan, and other Northeast countries need to establish close cooperation to enhance their negotiation power within the global LNG market.

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  • Choi, Gobong & Heo, Eunnyeong, 2017. "Estimating the price premium of LNG in Korea and Japan: The price formula approach," Energy Policy, Elsevier, vol. 109(C), pages 676-684.
    • Handle: RePEc:eee:enepol:v:109:y:2017:i:c:p:676-684
    DOI: 10.1016/j.enpol.2017.07.033
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    2. Lee, Kyung-Sook & Kim, Ju-Hee & Yoo, Seung-Hoon, 2021. "Would people pay a price premium for electricity from domestic wind power facilities? The case of South Korea," Energy Policy, Elsevier, vol. 156(C).
    3. Miao, Xiaoyu & Wang, Qunwei & Dai, Xingyu, 2022. "Is oil-gas price decoupling happening in China? A multi-scale quantile-on-quantile approach," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 450-470.
    4. Wang, Tiantian & Zhang, Dayong & Ji, Qiang & Shi, Xunpeng, 2020. "Market reforms and determinants of import natural gas prices in China," Energy, Elsevier, vol. 196(C).
    5. Chaofeng Tang & Kentaka Aruga, 2020. "A Study on the Pass-Through Rate of the Exchange Rate on the Liquid Natural Gas (LNG) Import Price in China," IJFS, MDPI, vol. 8(4), pages 1-19, November.
    6. Chen, Jiandong & Yu, Jie & Ai, Bowei & Song, Malin & Hou, Wenxuan, 2019. "Determinants of global natural gas consumption and import–export flows," Energy Economics, Elsevier, vol. 83(C), pages 588-602.

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