Trade with Endogenous Transportation Costs: The Value of LNG Exports

24 Pages Posted: 10 Mar 2015

See all articles by Atle Oglend

Atle Oglend

University of Stavanger

Petter Osmundsen

University of Stavanger; CESifo (Center for Economic Studies and Ifo Institute)

Tore Selland Kleppe

University of Stavanger

Multiple version iconThere are 2 versions of this paper

Date Written: February 27, 2015

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

JEL Classification: F13, Q27, Q48

Suggested Citation

Oglend, Atle and Osmundsen, Petter and Kleppe, Tore Selland, Trade with Endogenous Transportation Costs: The Value of LNG Exports (February 27, 2015). CESifo Working Paper Series No. 5222. Available at SSRN: https://ssrn.com/abstract=2576189

Atle Oglend (Contact Author)

University of Stavanger ( email )

PB 8002
Stavanger, 4036
Norway

Petter Osmundsen

University of Stavanger ( email )

4036 Stavanger
Norway

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Tore Selland Kleppe

University of Stavanger ( email )

PB 8002
Stavanger, 4036
Norway

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