Market Equilibrium Model for LNG Shipments

Abstract

We developed a market equilibrium model based on a constrained quadratic optimisation problem that maximizes the profit margins of liquefied natural gas (LNG) shipping companies. In 2022, the European LNG imports and prices have increased sharply due to the reduced pipeline gas from Russia. The market equilibrium model is calibrated to realistic trade volumes and prices for the most influential regions in the LNG market. We calibrate the market equilibrium model by solving a bilevel optimisation problem, to obtain ask and bid parameters, which cannot be collected directly from market data. We present a scenario analysis, in which we show that European prices would have increased by 5% if China had not been in lockdown during 2022. To illustrate the usability and limitations of our model, we also investigate the effects of the Panama Canal drought on trade flows and the impact of Australian port labour strikes on Asian imports based on the market data from August 2023.