Spot sale of uncommitted LNG from Middle East: Japan or the UK?

Abstract

The importance of liquefied natural gas (LNG) is rising as demand for it grows rapidly and steadily due to growth in energy demand, the transition to a low carbon economy and the longer distances over which natural gas is now traded. Given its importance, this work proposes an optimization model that assists to decide on when and where LNG should be delivered by coordinating tanker type, assignment and routing, inventory management, contract obligations, arbitrage and uncommitted LNG. The model maximizes the profit mainly by taking advantage of price differences between different markets. The contributions of this work are twofold. First, following the analysis of expenses and revenues, a new mixed integer programming model for LNG liquefaction and shipping is proposed from a corporate finance perspective. Furthermore, a solution approach for it is implemented and tested. Second, the model is used to derive a short term trade policy for the Middle Eastern LNG producers regarding the spot sale of their uncommitted product to Japan or to the UK, namely to: dispatch to whichever market has the higher current spot price, regardless of the variability of the transport expenses.