The Not So Perilous Sea: An Optimization Model for Fleet Positioning of Liquefied Natural Gas Carriers in Future Energy Commodity Markets

Abstract

The need for energy is constantly increasing in the wake of global demand and population growth. This increase in demand has so far been met with nuclear energy, renewables, and above all, fossil fuels. Economic and human development growth has been particularly aggressive in regions such as India, Southeast Asia and China - all heavily dependent on energy import. As a result, an increasing seaborne fossil fuel transportation gap has to be filled to meet the need for energy. Seaborne fossil fuel transportation growth and trade patterns have remained relatively predictable from the end of the Second World War until the beginning of the 21st century, excluding the 1967-75 Suez Canal closure and the 1973/1979 oil crisis. Over the last decade, however, with increasing production of energy fuels in North America due to the ongoing shale revolution, and erratic production and export levels in several leading OPEC countries such as Libya, Iran and Iraq, as well as increasing energy demand in both Asia and Africa, trade patterns are changing and becoming increasingly complex. From 2003 - 2014, world trade in oil increased from approx. 46 million barrels per day to 56 million barrels per day, or approx. 2% p.a, and liquefied natural gas export increased from approx. 110 million tonnes per annum to 220 million tonnes per annum or approx. 7.2% p.a. In the same period, we experienced a financial crisis, several geopolitical crisis’, as well as increasingly unstable oil, gas and coal markets with extreme growth in price differentials across regions. Looking into the future, projections from several leading energy analysts and demographics experts indicate continued ramifications for the global energy market. With the increasing complexity and volume of energy trade, in particular trade of fossil fuels, this thesis attempts to create a robust model to optimize the positioning of hydrocarbon carriers, in particular liquefied natural gas carriers, in global markets. The model is developed from a combination of highly accurate statistics and projections established by leading independent energy consultants on both sides of the Atlantic, as well as stochastic models developed by the author, alumni and faculty at Princeton University.