Impacts of an Ice-Free Northeast Passage on LNG Trading: Transport Routes and Optimal Capacity Planning

Michael Schach () and Reinhard Madlener
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Michael Schach: RWTH Aachen University, Postal: Templergraben 55, 52056 Aachen, Germany, http://www.rwth-aachen.de/

No 12/2017, FCN Working Papers from E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)

Abstract: We analyze the significance of an ice-free Northeast Passage (NEP) as a shipping route for LNG, and the impacts on alternative transport routes and -capacities. The following aspects are considered: (1) Trends in LNG production, particularly in the Russian Arctic; (2) Developments in the Asian LNG consumer market; (3) Specifics and prospects of Arctic shipping. The major LNG trade flows between producers and the Asian consumer market are modeled. Methods from Operations Research are contrasted and the Cycle-Cancelling Algorithm applied to the transportation problem, in order to achieve a cost-optimal capacity allocation. The impacts of demand variations and a chokepoint shutdown on transport routes and -capacities are considered. Concepts from competition theory are used to model the effects on LNG pricing. The key finding is that an ice-free NEP is highly relevant for shipping activities of Russian LNG producers. It constitutes a competitive advantage and notably impacts the supply competition and pricing on the Asian LNG market. A discussion of results and a conclusion critically reflect upon the research undertaken, providing an outlook and suggestions for future research.

Keywords: LNG; Northeast Passage; Arctic Shipping; Logistics; Cycle-Cancelling Algorithm (search for similar items in EconPapers)
JEL-codes: Q30 Q40 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2017-09
New Economics Papers: this item is included in nep-cis, nep-int, nep-sea and nep-tre
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:fcnwpa:2017_012

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