IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v226y2013i1p100-114.html
   My bibliography  Save this article

Strategic analysis of technology and capacity investments in the liquefied natural gas industry

Author

Listed:
  • Sönmez, Erkut
  • Kekre, Sunder
  • Scheller-Wolf, Alan
  • Secomandi, Nicola

Abstract

Energy plays a fundamental role in both manufacturing and services, and natural gas is rapidly becoming a key energy source worldwide. Facilitating this emergence is an expanding network of ocean-going vessels that enable the matching of natural gas supply and demand on a global scale. This is achieved through the transportation of liquefied natural gas (LNG) for eventual regasification at its destination. Until very recently, only one type of technology had been available for transporting and regasifying LNG: Conventional LNG vessels coupled with land based LNG regasification. But it is now possible to transport and regasify LNG onboard special LNG vessels. Companies such as Excelerate Energy and Höegh LNG are currently developing LNG supply chains based on this new technology. Motivated by these developments, we engaged executives at Excelerate Energy to facilitate an investigation of issues related to strategic technology selection, as well as choices around technology configuration and capacity for the incumbent and emerging technologies. The resulting analysis brings to light managerial principles delineating the impact of alternative LNG throughput models on decisions regarding how to deploy each technology option and how to configure and size their capacity. Our findings have additional potential relevance beyond our industry specific analysis.

Suggested Citation

  • Sönmez, Erkut & Kekre, Sunder & Scheller-Wolf, Alan & Secomandi, Nicola, 2013. "Strategic analysis of technology and capacity investments in the liquefied natural gas industry," European Journal of Operational Research, Elsevier, vol. 226(1), pages 100-114.
    • Handle: RePEc:eee:ejores:v:226:y:2013:i:1:p:100-114
    DOI: 10.1016/j.ejor.2012.10.042
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221712008077
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2012.10.042?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. James T. Jensen, 2003. "The LNG Revolution," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-45.
    2. Yepes Rodri­guez, Ramón, 2008. "Real option valuation of free destination in long-term liquefied natural gas supplies," Energy Economics, Elsevier, vol. 30(4), pages 1909-1932, July.
    3. Luis M. Abadie & José M. Chamorro, 2009. "Monte Carlo valuation of natural gas investments," Review of Financial Economics, John Wiley & Sons, vol. 18(1), pages 10-22, January.
    4. Achal Bassamboo & J. Michael Harrison & Assaf Zeevi, 2009. "Pointwise Stationary Fluid Models for Stochastic Processing Networks," Manufacturing & Service Operations Management, INFORMS, vol. 11(1), pages 70-89, August.
    5. John D. C. Little, 1970. "Models and Managers: The Concept of a Decision Calculus," Management Science, INFORMS, vol. 16(8), pages 466-485, April.
    6. Tyson R. Browning, 2009. "The many views of a process: Toward a process architecture framework for product development processes," Systems Engineering, John Wiley & Sons, vol. 12(1), pages 69-90, March.
    7. Ozelkan, Ertunga C. & D'Ambrosio, Alfred & Teng, S. Gary, 2008. "Optimizing liquefied natural gas terminal design for effective supply-chain operations," International Journal of Production Economics, Elsevier, vol. 111(2), pages 529-542, February.
    8. Marielle Christiansen & Kjetil Fagerholt & David Ronen, 2004. "Ship Routing and Scheduling: Status and Perspectives," Transportation Science, INFORMS, vol. 38(1), pages 1-18, February.
    9. repec:dau:papers:123456789/607 is not listed on IDEAS
    10. Marshall Fisher, 2007. "Strengthening the Empirical Base of Operations Management," Manufacturing & Service Operations Management, INFORMS, vol. 9(4), pages 368-382, December.
    11. Schütz, Peter & Tomasgard, Asgeir & Ahmed, Shabbir, 2009. "Supply chain design under uncertainty using sample average approximation and dual decomposition," European Journal of Operational Research, Elsevier, vol. 199(2), pages 409-419, December.
    12. Zimmermann, H. -J., 2000. "An application-oriented view of modeling uncertainty," European Journal of Operational Research, Elsevier, vol. 122(2), pages 190-198, April.
    13. Roar Grønhaug & Marielle Christiansen, 2009. "Supply Chain Optimization for the Liquefied Natural Gas Business," Lecture Notes in Economics and Mathematical Systems, in: Jo A.E.E. Nunen & M. Grazia Speranza & Luca Bertazzi (ed.), Innovations in Distribution Logistics, chapter 10, pages 195-218, Springer.
    14. Roar Grønhaug & Marielle Christiansen & Guy Desaulniers & Jacques Desrosiers, 2010. "A Branch-and-Price Method for a Liquefied Natural Gas Inventory Routing Problem," Transportation Science, INFORMS, vol. 44(3), pages 400-415, August.
    15. Ernest Koenigsberg & Richard C. Lam, 1976. "Cyclic Queue Models of Fleet Operations," Operations Research, INFORMS, vol. 24(3), pages 516-529, June.
    16. Henn, Vincent & Ottomanelli, Michele, 2006. "Handling uncertainty in route choice models: From probabilistic to possibilistic approaches," European Journal of Operational Research, Elsevier, vol. 175(3), pages 1526-1538, December.
    17. E. J. Durrer & G. E. Slater, 1977. "Optimization of Petroleum and Natural Gas Production--A Survey," Management Science, INFORMS, vol. 24(1), pages 35-43, September.
    18. Francesca Gino & Gary Pisano, 2008. "Toward a Theory of Behavioral Operations," Manufacturing & Service Operations Management, INFORMS, vol. 10(4), pages 676-691, March.
    19. Ronen, David, 1993. "Ship scheduling: The last decade," European Journal of Operational Research, Elsevier, vol. 71(3), pages 325-333, December.
    20. Arnoldo C. Hax & Nicolas S. Majluf & Mark Pendrock, 1980. "Diagnostic Analysis of a Production and Distribution System," Management Science, INFORMS, vol. 26(9), pages 871-889, September.
    21. Helyette Geman, 2005. "Commodities and Commodity Derivatives. Modeling and Pricing for Agriculturals, Metals and Energy," Post-Print halshs-00144182, HAL.
    22. Ronen, David, 1983. "Cargo ships routing and scheduling: Survey of models and problems," European Journal of Operational Research, Elsevier, vol. 12(2), pages 119-126, February.
    23. James E. Smith, 2005. "Alternative Approaches for Solving Real-Options Problems," Decision Analysis, INFORMS, vol. 2(2), pages 89-102, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Devine, Mel T. & Russo, Marianna, 2019. "Liquefied natural gas and gas storage valuation: Lessons from the integrated Irish and UK markets," Applied Energy, Elsevier, vol. 238(C), pages 1389-1406.
    2. Francesca Maggioni & Elisabetta Allevi & Asgeir Tomasgard, 2020. "Bounds in multi-horizon stochastic programs," Annals of Operations Research, Springer, vol. 292(2), pages 605-625, September.
    3. Michal Kaut & Kjetil Midthun & Adrian Werner & Asgeir Tomasgard & Lars Hellemo & Marte Fodstad, 2014. "Multi-horizon stochastic programming," Computational Management Science, Springer, vol. 11(1), pages 179-193, January.
    4. Erkut Sönmez & Alan Scheller-Wolf & Nicola Secomandi, 2017. "An Analytical Throughput Approximation for Closed Fork/Join Networks," INFORMS Journal on Computing, INFORMS, vol. 29(2), pages 251-267, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Guoming Lai & Mulan X. Wang & Sunder Kekre & Alan Scheller-Wolf & Nicola Secomandi, 2011. "Valuation of Storage at a Liquefied Natural Gas Terminal," Operations Research, INFORMS, vol. 59(3), pages 602-616, June.
    2. Christiansen, Marielle & Fagerholt, Kjetil & Nygreen, Bjørn & Ronen, David, 2013. "Ship routing and scheduling in the new millennium," European Journal of Operational Research, Elsevier, vol. 228(3), pages 467-483.
    3. Mutlu, Fatih & Msakni, Mohamed K. & Yildiz, Hakan & Sönmez, Erkut & Pokharel, Shaligram, 2016. "A comprehensive annual delivery program for upstream liquefied natural gas supply chain," European Journal of Operational Research, Elsevier, vol. 250(1), pages 120-130.
    4. Elin Halvorsen-Weare & Kjetil Fagerholt, 2013. "Routing and scheduling in a liquefied natural gas shipping problem with inventory and berth constraints," Annals of Operations Research, Springer, vol. 203(1), pages 167-186, March.
    5. Pang, King-Wah & Xu, Zhou & Li, Chung-Lun, 2011. "Ship routing problem with berthing time clash avoidance constraints," International Journal of Production Economics, Elsevier, vol. 131(2), pages 752-762, June.
    6. Berle, Øyvind & Asbjørnslett, Bjørn Egil & Rice, James B., 2011. "Formal Vulnerability Assessment of a maritime transportation system," Reliability Engineering and System Safety, Elsevier, vol. 96(6), pages 696-705.
    7. Ge, Fangsheng & Beullens, Patrick & Hudson, Dominic, 2021. "Optimal economic ship speeds, the chain effect, and future profit potential," Transportation Research Part B: Methodological, Elsevier, vol. 147(C), pages 168-196.
    8. Meng, Qiang & Wang, Shuaian & Lee, Chung-Yee, 2015. "A tailored branch-and-price approach for a joint tramp ship routing and bunkering problem," Transportation Research Part B: Methodological, Elsevier, vol. 72(C), pages 1-19.
    9. Meng, Qiang & Wang, Tingsong & Wang, Shuaian, 2012. "Short-term liner ship fleet planning with container transshipment and uncertain container shipment demand," European Journal of Operational Research, Elsevier, vol. 223(1), pages 96-105.
    10. Harilaos N. Psaraftis, 2019. "Ship routing and scheduling: the cart before the horse conjecture," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 21(1), pages 111-124, March.
    11. Agra, Agostinho & Christiansen, Marielle & Delgado, Alexandrino & Simonetti, Luidi, 2014. "Hybrid heuristics for a short sea inventory routing problem," European Journal of Operational Research, Elsevier, vol. 236(3), pages 924-935.
    12. Ricardo Gatica & Pablo Miranda, 2011. "Special Issue on Latin-American Research: A Time Based Discretization Approach for Ship Routing and Scheduling with Variable Speed," Networks and Spatial Economics, Springer, vol. 11(3), pages 465-485, September.
    13. Ryuichi Shibasaki & Takayuki Iijima & Taiji Kawakami & Takashi Kadono & Tatsuyuki Shishido, 2017. "Network assignment model of integrating maritime and hinterland container shipping: application to Central America," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 19(2), pages 234-273, June.
    14. Zheng, Jianfeng & Yang, Dong, 2016. "Hub-and-spoke network design for container shipping along the Yangtze River," Journal of Transport Geography, Elsevier, vol. 55(C), pages 51-57.
    15. Wang, Hua & Wang, Shuaian & Meng, Qiang, 2014. "Simultaneous optimization of schedule coordination and cargo allocation for liner container shipping networks," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 70(C), pages 261-273.
    16. Jasmine Lam, 2010. "An integrated approach for port selection, ship scheduling and financial analysis," Netnomics, Springer, vol. 11(1), pages 33-46, April.
    17. Mulder, J. & Dekker, R., 2016. "Will liner ships make fewer port calls per route?," Econometric Institute Research Papers EI2016-04, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    18. Sun, Qinghe & Meng, Qiang & Chou, Mabel C., 2021. "Optimizing voyage charterparty (VCP) arrangement: Laytime negotiation and operations coordination," European Journal of Operational Research, Elsevier, vol. 291(1), pages 263-270.
    19. Kjetil Fagerholt *, 2004. "Designing optimal routes in a liner shipping problem," Maritime Policy & Management, Taylor & Francis Journals, vol. 31(4), pages 259-268, October.
    20. Mulder, J. & Dekker, R., 2016. "Optimization in container liner shipping," Econometric Institute Research Papers EI2016-05, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:226:y:2013:i:1:p:100-114. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.