Correction: Corrects Jan 23 story to remove erroneous comment that JKM caters mostly to Japan and Korea in paragraph 18.
China intends to introduce domestic, yuan-denominated futures for liquefied natural gas (LNG) as early as next month, according to people with direct knowledge of the plans who asked not to be identified. The derivative is expected to be listed on the Shanghai Futures Exchange (ShFE), the sources said. The ShFE and the China Securities Regulatory Commission did not provide a response to requests for comment.
The launch reflects a long-held aim by the bourse to offer internationally accessible contracts that would elevate its global footprint and provide competition to widely used foreign pricing benchmarks for commodities such as nickel and LNG. Market participants and policymakers see a domestic LNG contract as a way to reduce Chinese importers' dependence on overseas prices when structuring physical LNG purchases.
One objective behind the initiative is to create greater onshore price discovery in yuan, thereby reducing the need for Chinese companies to reference international benchmarks when negotiating physical contracts. The contract could also compel foreign firms with China exposures to trade on the ShFE if they want to hedge positions tied to Chinese deliveries.
At a time of significant trade policy shifts from the United States, people involved in the discussions say that the ability to settle and manage prices between domestic entities in local currency could strengthen energy security. That view is linked to broader commentary from an investment bank noting U.S. policy has contributed to a "multipolar world" and is eroding the dollar's primacy in trade.
LNG shipments to China, the world's largest importer, fell last year. The sources attributed that decline to U.S. tariffs, weaker industrial demand and strong domestic and piped gas supplies. Looking ahead, global LNG production is expected to increase this year, easing the supply constraints that emerged after Russia's invasion of Ukraine in 2022 - a development analysts say could temper price pressure and support higher imports to China.
Rystad Energy analyst Ole Dramdal is cited by the sources as forecasting Chinese LNG imports will rise about 12% to 76.5 million metric tons this year.
Price discovery and market structure
A senior executive at a global bank noted that although China is the largest buyer of many commodities, key price discovery currently occurs overseas. Establishing a yuan-denominated LNG futures contract would allow domestic price signals to better reflect China's specific demand and supply dynamics, the people involved in negotiations say.
The yuan contract could also allow Chinese banks and financial institutions to develop complementary products. With LNG contracts quoted in yuan, banks could package related risk into yuan-denominated LNG-linked loans, repurchase agreements and asset-backed securities, enabling a broader domestic market ecosystem around the commodity.
One of the people involved in talks, described as a state gas trader, said: "China needs a benchmark that reflects its own demand and supply. We foresee long-term supplies to China, for instance, to factor in Shanghai contracts, rather than be heavily benchmarked to Brent oil."
Currently, the major LNG futures and reference prices align with physical hubs. The most liquid benchmarks operate at established physical points such as the United States' Henry Hub and Europe's Title Transfer Facility (TTF), alongside the Japan-Korea Marker (JKM). The people involved in the discussions said international oil companies, Western traders and Middle Eastern exporters with China exposure could be willing participants in a yuan-denominated contract.
However, foreign firms would face a procedural requirement to trade the new contract - they would need to establish a China-based trading entity to access the contract directly, the sources said.
Implications for markets and participants
The proposed contract aims to shift some of the price-setting and hedging activity onshore, creating a localized reference that better captures China-specific flows and potentially altering how global firms hedge China-related LNG risk. It also opens a path for onshore financial products that could transfer LNG price exposure through the domestic financial system.
Regulators and the Shanghai exchange have not publicly commented on the exact timetable or contract specifications, and the plan remains dependent on final approvals and implementation details that were not provided by the sources.