Trade with Endogenous Transportation Costs: The Value of LNG Exports

Atle Oglend, Petter Osmundsen and Tore Kleppe (tore.kleppe@uis.no)

No 2015/5, UiS Working Papers in Economics and Finance from University of Stavanger

Abstract: 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.

Keywords: LNG; natural gas; export; trade policy (search for similar items in EconPapers)
JEL-codes: F13 Q27 Q48 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2015-02-09
New Economics Papers: this item is included in nep-ene, nep-int and nep-tre
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Trade with Endogenous Transportation Costs: The Value of LNG Exports (2015)
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