Freeman Spogli Institute for International Studies Program on Energy and Sustainable Development Stanford University


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Flexible LNG Supply and Gas Market Integration: A Simulation Approach for Valuing the Market Arbitrage Option


Mark H. Hayes

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Stanford, 2007

Random (stochastic) variability in gas demand and prices creates significant option value for LNG suppliers with destination flexibility. In this chapter the author describes an analytical model to value the option of cargo diversion and to draw insights about the potential for future regional price convergence. This text is a working paper version of Chapter 4 in Mark Hayes' doctoral dissertation to be published in 2007 by Stanford University Press.