Japanese LPG buyers would need to consider a new pricing system for LPG imports as supplies from the US increase, the chairman of the Japan LP Gas Association said Wednesday.

“The Japanese LPG industry would need to consider a new pricing formula which takes into consideration [Saudi Aramco] Contract Prices and [US] Mont Belvieu benchmarks from various perspectives,” Tatsuhiko Yamasaki said, when asked to comment about the need for a new pricing formula.

“But we do not have a specific method as yet,” Yamasaki told a news briefing in Tokyo.

Yamasaki’s comments come as Japanese LPG buyers are increasing their efforts to not only diversify their predominant Middle Eastern supply sources but also their pricing basis, which is now largely CP-linked, as more natural gas-derived LPG supplies are set to flow into to the Pacific Rim in the years ahead.

In 2013, Japan imported a total of 9.098 million mt of LPG from the Middle East, which accounted for 78.6% of total imports. The US accounts for 952,000 mt of Japanese LPG imports, or 8.2% of the total, according to the association.

Japan’s total LPG imports were 11.574 million mt in 2013.

The percentage of Japanese LPG imports that came from the Middle East in 2013 was down from 84% in 2005, while the percentage from the US last year surged from merely 0.2% in 2005, the association data showed.

Although there is an increasing number of Japanese LPG importers signing more US LPG procurement contracts, an expected completion of the Panama Canal expansion project is seen as vital for Japan to take up more US LPG supplies.

The Panama Canal authority is targeting a January 2016 startup, but the market expects it sometime in the first quarter of 2016.

“We also think the expansion will complete in January 2016 although we are also aware that there is some information for further delays,” Yamasaki said.

He said Japanese LPG buyers have signed contracts to import at least 2 million mt/year of US LPG by 2016, adding that “this trend will be accelerated if there are further merits.”

If all of the committed US LPG is brought back to Japan in 2016, US LPG imports could account for roughly 17% of Japan’s total imports of 11.574 million mt in 2013, according to Platts calculations based on the association data.

Asked about the economics of US LPG imports, Yamasaki said US LPG imports this year would have a merit compared with Middle Eastern supplies if there are “more or less than $100/mt” of price differentials, including freight rates, between CP and Mont Belvieu prices.

Looking ahead, Yamasaki also said Japanese LPG buyers may have to increase their import volumes amid steady domestic demand for city gas and industrial use as local refiners are cutting their refining capacity in response to regulations.

“Imports of LPG would be increasingly important,” said Yamasaki, adding that roughly 80% of Japan’s current LPG demand is met by imports, compared with 20% by domestic production.