Strategic analysis of technology and capacity investments in the liquefied natural gas industry

Sönmez, Erkut; Kekre, Sunder; Scheller‐Wolf, Alan; Secomandi, Nicola

doi:10.1016/j.ejor.2012.10.042

Cited by 24 publications

(9 citation statements)

References 28 publications

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“…Although long-term contracts are in general more efficient contractual agreements in cross-border trade, short-term contracts can become a more effective strategy when cross-border institutional distance is relatively high. Finally, given that capacity maximization is an important parameter (Sönmez et al, 2013) and a crucial key performance indicator for most stakeholders in the LNG industry (see the Supporting Information), we argue that long-term contracts should in general be preferred by companies (owners, charterers, brokers, buyers) to achieve the best possible operational performance in the long run.…”

Section: Managerial Implicationsmentioning

confidence: 96%

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Contract Types, Institutional Distance and Operational Performance: Evidence from Global Trade Flows in the LNG Industry

Batsakis

Robotis

Koulamas

et al. 2022

British J of Management

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In this study, we examine the relationship between contract types, institutional distance and operational performance in the context of cross‐border trade in the liquefied natural gas (LNG) industry. Drawing on the buyer–supplier long‐term relationships literature, we argue for a negative link between short‐term contractual agreements and operational performance. Further, drawing insights from institutional theory, we contend that a high level of formal and informal institutional distance between the origin (i.e. supplier) and destination (i.e. buyer) countries reduces operational performance. We also argue that formal and informal institutional distance mitigates the negative effect of short‐term contracts on operational performance. Finally, we draw on the role of ‘asymmetry in distance’ by examining the direct and moderating effect of both the relevance and direction of formal institutional distance. We test our assumptions using LNG global trade flows from 39 source countries to 44 destination countries over the 2008–2017 period (a total of 17,447 shipments). Our study extends our knowledge on the operational performance implications of buyer–supplier relationships and stresses the important role formal and informal institutional distance plays as a direct and moderating effect on this relationship.

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Section: Managerial Implicationsmentioning

confidence: 96%

“…The research context of our study is the LNG global trade flows undertaken by LNG carriers. LNG is frequently sold to countries located in continents other than the continent of extraction, necessitating the transportation of natural gas in liquid form via sea lines (Sönmez et al, 2013).…”

Section: Research Contextmentioning

confidence: 99%

Contract Types, Institutional Distance and Operational Performance: Evidence from Global Trade Flows in the LNG Industry

Batsakis

Robotis

Koulamas

et al. 2022

British J of Management

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“…Our paper is most relevant to the stream of papers that models the idiosyncratic features of specific industries for capacity management. The examples include Karabuk and Wu (2003) for the semi-conductor industry and Sönmez et al (2013) for the liquified natural gas industry. Our consideration of the characteristics of commodity processors in agricultural industries is the distinguishing feature of our work with respect to this literature.…”

Section: Literature Reviewmentioning

confidence: 99%

Capacity Management in Agricultural Commodity Processing and Application in the Palm Industry

Boyabatlı

Nguyen

Wang

2017

M&SOM

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This paper studies the capacity investment decisions of an agri-processor that uses a commodity input to produce a commodity output and a byproduct. Using a multiperiod model, we study the one-time processing and (output) storage capacity investment decisions, and the periodic processing and inventory decisions in the presence of input and output spot price uncertainties and uncertain production yield. We identify three capacity investment strategies, investing in storage-dominating, processingdominating or mixed portfolio, and provide conditions under which each strategy is optimal. Using a calibration based on the palm industry, we provide rules of thumb for capacity management: The processor should decrease its processing capacity with an increase in price correlation; and with an increase (a decrease) in input or output price volatility when this volatility is low (high). The storage capacity should be adjusted in a similar fashion only as a response to a change in output price volatility, otherwise it should not be altered. We find that not accounting for the byproduct revenue or inventory holding possibility in capacity planning leads to sizeable profit loss. Ignoring production yield uncertainty has a significant negative impact on profitability if the capacity planning is made based on the maximum yield possible, as often done in practice; but it has an insignificant impact if the planning is made based on the average yield.

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“…In [35] properties of the risk measures such as time consistency in multi-horizon scenario trees has been investigated and illustrated with a stylized example. Other papers in the literature considering aspects related to handling both time scales in one model are given by [31] who include short-term variations in a strategic model for the Norvegian meat industry, [33] analyze strategic investment decisions in liquefied natural gas transport and discuss the impact of using a stochastic model at the operational level showing that also operational flexibility is important in order to cope with short-term variations and has a significant impact on profitability. In [1,2] the multi-horizon modeling approach has been applied to a complex pumped storage hydro power plant in a liberalized market environment in or-der to give decision support for its scheduling.…”

Section: Introductionmentioning

confidence: 99%

Bounds in multi-horizon stochastic programs

2019

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In this paper, we present bounds for multi-horizon stochastic optimization problems, a class of problems introduced in [16] relevant in many industry-life applications tipically involving strategic and operational decisions on two different time scales.After providing three general mathematical formulations of a multi-horizon stochastic program, we extend the definition of the traditional Expected Value problem and Wait-and-See problem from stochastic programming in a multihorizon framework. New measures are introduced allowing to quantify the importance of the uncertainty at both strategic and operational levels. Relations among the solution approaches are then determined and chain of inequalities provided. Numerical experiments based on an energy planning application are finally presented.

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Strategic analysis of technology and capacity investments in the liquefied natural gas industry

Cited by 24 publications

References 28 publications

Contract Types, Institutional Distance and Operational Performance: Evidence from Global Trade Flows in the LNG Industry

Contract Types, Institutional Distance and Operational Performance: Evidence from Global Trade Flows in the LNG Industry

Capacity Management in Agricultural Commodity Processing and Application in the Palm Industry

Bounds in multi-horizon stochastic programs

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