Trade with endogenous transportation costs: The case of liquefied natural gas

Atle Oglend, Tore Kleppe () and Petter Osmundsen

Energy Economics, 2016, vol. 59, issue C, 138-148

Abstract: This paper investigates the relationship between LNG shipping costs and regional natural gas price spreads. We use data on natural gas prices and shipping costs to analyze the distribution of trade benefits within the LNG value chain when shipping costs are endogenous to price spread developments. Our empirical analysis suggests that for the 2006–2014 period, the LNG shipping sector has had an implied scarcity rent on LNG shipping capacity of $0.14/MMBtu for the EU/US spread, $0.32/MMBtu for the Asia/EU spread, and $0.42/MMBtu for the Asia/US spread. We highlight in a counter-factual analysis that this distributional effect is not economically negligible. We investigate how including endogenous transportation costs affects the measured degree of price convergence between regional natural gas markets. We find that price convergence is stronger when we control for variations in transportation costs rather than implicitly assuming fixed or exogenous costs.

Keywords: LNG; Natural gas; Trade; Exports; Market integration (search for similar items in EconPapers)
JEL-codes: F13 Q27 Q48 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:59:y:2016:i:c:p:138-148

DOI: 10.1016/j.eneco.2016.08.013

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