S-curve

The first LNG supply contract signed between Indonesia and Japan introduced oil-indexed prices for the sale of LNG. Japanese power generation was highly dependent on crude oil so gas prices were linked to crude oil with the benchmark price being Japanese Customs Clearing or Japanese Crude Cocktail (JCC).

The S-curve was introduced into contracts to protect both buyers and sellers from highly volatile oil prices and thus reduce price risk. It establishes a linear relationship between JCC and gas prices as long as oil price is in a specified range, and limits the price response when oil price is too high or low. It essentially introduced a floor and ceiling price.

The most common form of Asian pricing formula for LNG has been:

P = A*JCC +B

where P=LNG Price, A=slope linking JCC to LNG price, B=constant.

The diagram below illustrates a typical S-curve.



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