Strategic and operational decision-making in expanding supply chains for LNG as a fuel

The European Union aims for a 40% reduction in greenhouse gas emissions by 2030, compared to 1990 levels, and recognizes the opportunities of Liquefied Natural Gas (LNG) as an alternative fuel for transportation to reach this goal. The lack of a mature supply chain for LNG as a fuel results in a need to invest in new (satellite) terminals, bunker barges and tanker trucks. This network design problem can be defined as a Two-Echelon Capacitated Location Routing Problem with Split Deliveries (2E-CLRPSP). An important feature of this problem is that direct deliveries are allowed from terminals, which makes the problem much harder to solve than the existing location routing literature suggests. In this paper, we improve the performance of a hybrid exact algorithm and apply our algorithm to a real-world network design problem related to the expansion of the European supply chain for LNG as a fuel. We show that satellite terminals and bunker barges become an interesting option when demand for LNG grows and occurs further away from the import terminal. In those situations, the large investments associated with LNG satellites and bunker barges are offset by reductions in operational costs of the LNG tanker trucks.