The move comes amid concerns among buyers that an oil-linked price does not reflect LNG market fundamentals.
Woodside CEO Peter Coleman said in the company's first half analyst conference call barely a fortnight ago that he did "not see much support" for LNG spot pricing over the next 18 months.
However, even aside from the oil-linked aspect, the LNG market itself is oversupplied, and that will worsen with BG Group's Queensland Curtis having already come online and Australia Pacific LNG (Origin Energy, ConocoPhillips) and Santos' Gladstone LNG due to follow in the next year.
Woodside hopes to make final investment decision on the Browse floating LNG development - which received Commonwealth conditional environmental approval last month - mid-next year.
The CME contract seeks to give importers, including power utilities and city gas suppliers, a chance to hedge risk as Japan sets the groundwork to deregulate its power market next year, which could in turn trigger spot trading of the world's fastest growing energy source.
US firm CME, the world's biggest futures exchange operator, and Japanese energy price and information services firm Rim Intelligence announced yesterday they had inked a deal that would see CME use "DES Japan" prices published in the Rim LNG report, as well as develop and provide clearing services for energy derivatives on DES Japan prices.
DES Japan prices are assessed based mainly on LNG prices in the LNG Non-Derivative Forward contract established by the Japan OTC Exchange.
Rim CEO Hisako Mori said that as retail markets for power and gas in Japan would be deregulated from next year onwards, LNG prices were expected to play an "extremely important role" in those markets.
"We hope that this license agreement with CME will lead to more active trades and greater liquidity in the LNG market," Mori added.
CME president and executive chairman Terry Duffy said it was hoped the deal would mitigate counterparty risk for users and traders of various OTC (over the counter) energy products developed and based on the Rim DES Japan LNG assessment.
CME managing director and head of Asia Pacific Christopher Fix said the arrangement would have important implications for LNG markets in Asia and Japan more specifically.
"Through this partnership, we hope to see greater involvement by market participants in managing their LNG price risks, and create a more vibrant and liquid energy market, as deregulation of the industry continues to pick up pace," Fix said.
Tokyo Commodity Exchange president and CEO Takamichi Hamada, who is also a member of the Japan OTC Exchange management committee, said Japan OTC Exchange welcomed the development, as providing access to clearing services has been the group's top priority since it launched the LNG markets last year.
"Thanks to the clearing service provided by CME Group, the safety of LNG transactions on Japan OTC Exchange will be greatly enhanced and will allow our members to trade with a high level of comfort, which I believe would lead to the further development of the LNG markets in Asia," Hamada said.
CME Group also operates one of the world's leading central counterparty clearing providers through CME Clearing and CME Clearing Europe, which offer clearing and settlement services across asset classes for exchange-traded contracts and over-the-counter derivatives transactions.
