Optimizing LNG Procurement Strategy via Portfolio Theory: Application to the South Korean Import Portfolio in the Context of US Supply

Open Access
Author:
Chae, Ikgeun
Graduate Program:
Energy and Mineral Engineering
Degree:
Master of Science
Document Type:
Master Thesis
Date of Defense:
April 12, 2013
Committee Members:
  • Anastasia V Shcherbakova, Thesis Advisor
Keywords:
  • portfolio
  • MVP
  • mean variance
  • LNG
  • natural gas
  • liquefied natural gas
  • procurement
  • import
Abstract:
The current main criteria for Korean LNG supplier selection are import price reductions and increases in supply stability. The Korean government pursues the former by importing from inexpensive suppliers and the latter by diversifying supply sources. Between these two criteria, import price variance is not an important consideration. However, this variance is no longer a negligible factor in LNG supplier selection because variance in JCC price, an oil price to which most existing Korean LNG contracts are linked, has significantly increased in the 2000s. This study introduced a strategy to select LNG suppliers based on portfolio theory as an optimizing tool that considers import price and price variance simultaneously. Also, historical Korean portfolio performance and the impact of future US LNG imports were analyzed by applying portfolio theory. The results indicated that the Korean LNG portfolio’s performance has deteriorated in the past 12 years; the impact of supplier diversification on portfolio performance was hardly observable. Meanwhile, according to simulated future case-analysis results, importing from the US is expected to bring about an overall import price reduction effect along with the anticipated import price reduction.