Is LNG Arbitrage Possible in Natural Gas Market?

15 Pages Posted: 16 Jul 2012

See all articles by Yuri Yegorov

Yuri Yegorov

University of Vienna

Jalal Dehnavi

Vienna University- Institute of Business Administration

Date Written: July 16, 2012

Abstract

The dynamics of markets for natural gas during the last years included the higher role of LNG in gas trade, the growing role of spot markets, deregulation, liberalization and competition in national gas markets. Rising flexibility in contracts’ destination clauses created new international arbitrage opportunities. However, technical, contractual and market restrictions, difference in LNG qualities, shipping capacity limitation and high transportation costs are the most important barriers for an arbitrageur in LNG market. This paper studies the main barriers for LNG arbitrage and its cost. Using the time series for natural gas prices in different regional markets, we show to what extent arbitrage between three main hubs was possible, and discuss why the markets do not converge to unique world price for natural gas.

Keywords: arbitrage, LNG trade movement, price dynamics

JEL Classification: N7, P28

Suggested Citation

Yegorov, Yuri and Dehnavi, Jalal, Is LNG Arbitrage Possible in Natural Gas Market? (July 16, 2012). USAEE Working Paper No. 2110234. Available at SSRN: https://ssrn.com/abstract=2110234 or http://dx.doi.org/10.2139/ssrn.2110234

Yuri Yegorov (Contact Author)

University of Vienna ( email )

Bruenner Strasse 72
Vienna, Vienna 1090
Austria

Jalal Dehnavi

Vienna University- Institute of Business Administration ( email )

Oskar-Morgenstern-Platz 1 A
Vienna, Vienna 1090
Austria
00436606899111 (Phone)

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