Exploring shipping inefficiencies in global liquified natural gas trade patterns

Anastasia V. Shcherbakova, Andrew Kleit and Bagas Dhanurendra

Abstract

ABSTRACT

As global liquefied natural gas (LNG) markets have developed, some key inefficiencies seem to remain, including persistent price differences, a lack of arbitrage activity and excessively long LNG tanker routes, evidenced by crossings of fully laden tankers. In this paper, we examine GPS-communicated data on LNG tanker movements between January 2011 and August 2012 to determine possible drivers of inefficient shipping routes from producing to consuming countries. We find that perceived routing inefficiencies are actually driven by market forces such as peak demand seasons, spot cargoes and transportation constraints, induced by a tightening of the shipping market and a rise in spot charter costs. Economies of scale in tanker technology do not appear to play a role in the formation of observed shipping routes, with higher-capacity tankers being associated with more "efficient" (ie, shorter) voyages. Finally, vessels operated by vertically integrated energy companies appear to be associated with more efficient (or shorter) voyages than LNG tankers operated by independent shipping firms.