Market Equilibrium Model for LNG Shipments
Summary
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.