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

• Main Authors: Schach, Michael, Madlener, Reinhard
• Format: Report
• Language: unknown
• Subjects: Arctic; Northeast Passage
• Online Access: http://www.fcn.eonerc.rwth-aachen.de/global/show_document.asp?id=aaaaaaaaaayycgo

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. LNG; Northeast Passage; Arctic Shipping; Logistics; Cycle-Cancelling Algorithm