Evaluation of Liquefied Natural Gas as a Ship Fuel for Liner Shipping Using Evolutionary Game Theory

Abstract

Strict limits on air emissions released by burning fuel of ships have recently been imposed in Emission Control Areas. Retrofitting ships to use Liquefied Natural Gas (LNG) as a ship fuel is one of the methods for liner companies to comply with global regulations. Since the LNG retrofitting investment is expensive, it is likely that liner companies need a more scientific methodology to evaluate the LNG for propulsion of ships. Liner companies are particularly interested in their profits determined by the pricing decision. Based on the evolutionary game theory, this paper develops a mathematical model for the pricing problem with the consideration of market competition, LNG investment, and price elasticity. We also consider several realistic factors, such as the demand sensitivity for LNG effort, to make the proposed methodology meet the realistic demands when more and more liner companies need a revolutionary transformation because of the stricter regulations. Numerical experiments, including a simulated-data case, are performed to validate the proposed methodology. Some managerial insights are concluded according to the computational experiments and sensitivity analysis.