Trade with Endogenous Transportation Costs: The Value of LNG Exports

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper investigates the economic value of trade when prices of transportation services are endogenous to cross-market price spreads. This is relevant for liquefied natural gas (LNG) exports. LNG transportation capacity is limited in the short-run, and long lead-times are involved in extending the transportation infrastructure. We establish empirically that LNG transportation costs have been endogenous to regional gas prices spreads. As such, transportation service providers have been able to capture part of the price spread. We proceed to develop a method to value LNG exports under conditions of endogenous transportation costs and market integration. We use this method to quantify the effect of endogenous transportation costs on the value of LNG exports from the US to Japan. Our analysis shows that when transportation costs are correctly treated as endogenous, the LNG export benefit can drop by as much as 20-50% relative to the case of exogenous cost. Terms of use: Documents inJEL-Code: F130, Q270, Q480.

Supply and demand determinants of natural gas price volatility in the U.K.: A vector autoregression approach

“…With the arrival of liquefied natural gas (LNG), gas markets have become more interconnected (Brown and Yucell, 2009;Neumann, 2012;Oglend, Lindbäck and Osmundsen, 2014; Barnes and Bosworth, 2015). Nevertheless, complete global gas market integration will still be limited by LNG specific constraints such as liquefaction capacities (converting gas in gaseous form to liquid form), regasification capacities (converting gas in liquid form to gaseous form) and the availability of specialized LNG transport vessels and freight rates (Oglend, Osmundsen and Kleppe, 2015).…”