LNG Shipping in the Arcitc : Analyzing the effects of the Northern Sea Route on the LNG market by examining the potential of trade between Asia, Russia, and Norway.

Abstract

This thesis wishes to estimate the trade potential for LNG across the Northern Sea Route. Additionally, it looks at price levels and import patterns for other actors to assess the overall impact this trade route will have on the LNG industry. As natural gas has become increasingly transported by ship, the price levels between regions have converged. For this analysis, that entails that LNG exports from Norway and Russia should not have large impacts on the price, but there will logically be a small price increase in Europe as their supply has increased competition, while the Asian prices will have a corresponding reduction. The focus of the thesis are two exporting countries - Norway and Russia - alongside three importing countries - China, Japan, and South Korea. The thesis approaches the topic question by looking at existing trade patterns for these importers and creating regression models which then can be applied to the new shortened distances for Russia and Norway. Distance, alongside importer’s annual imports, exporter’s annual consumption, and exporter’s known natural gas reserves were determined to be the best predictors. While the thesis attempted to create both a combined model and individual models for each of the importers, issues with lack of available data caused the individual models to be far less reliable than hoped. The final estimates projected an overall large increase in LNG trade between the countries, but due to the sea route not being traversable year-round, these estimates are overshooting by up to 50-70%. Factors such as geopolitics, common investments, and demand seasonality can further influence the actual outcome, either increasing or decreasing the end volume of the trade.