SINGAPORE (REUTERS) - Singapore Exchange (SGX) and Japan's Tokyo Commodity Exchange (TOCOM) said on Tuesday they have signed a memorandum of understanding to jointly develop Asia's liquefied natural gas (LNG) market, as well as electricity futures.
As part of the accord, the exchanges plan to explore opportunities like co-listing LNG derivatives, as well as synergies between the pair's market distribution networks.
SGX, which listed Asia's first electricity futures in 2015, will also share its experience with its Japanese counterpart, Loh Boon Chye, SGX's Chief Executive Officer, said in a statement. "We also look forward to drawing on SGX's experience in electricity futures, as a liquid electricity market is closely linked to the development of the LNG market," said Takamichi Hamada, President and Chief Executive Officer of TOCOM.
SGX began pricing LNG in October 2015 when it launched its Singapore Sling index, assessing cargoes on a free-on-board Singapore basis. In September this year it launched a second index, the North Asia Sling.
The latter index, which will price the super-cooled fuel for the Japanese, South Korean, Taiwanese and Chinese markets, was seen by market participants as a signal that the market continues to take pricing signals from traditional buyers in North Asia.
Singapore, already Asia's main trading location for oil and refined fuel products, and Japan, the world's biggest consumer of LNG, had previously been in competition to establish Asia's main LNG hub.
Singapore has so far been seen to lack a big enough consumer base to warrant a real trading hub, although investors and market participants appreciate Singapore's well established trading regulations, as well as the fact that English is its operating language.
On the other hand, Japan's status as the world's biggest consumer was seen by LNG producers as creating a market that was too importer-biased.
With the two now cooperating, these concerns may be addressed, making it harder for other aspirant trading hubs - including Seoul and Shanghai - to succeed.