The economic value of LNG in the Korean manufacturing industry

Although LNG is an important input to industrial production for manufacturing firms, its economic value has been rarely investigated in the literature. This paper attempts to estimate the economic value of LNG in Korea's manufacturing sector by employing the concept of the value of marginal product (VMP). For this, we used data on 328 firms using LNG as an input. Two types of production functions (the Cobb–Douglas and trans-log functions) are applied. The result of the specification test indicates that the trans-log function is more appropriate for estimating the data. The output elasticity and VMP of industrial LNG are estimated to be 0.1346 and KRW 6844 (USD 6.22) per m3, respectively. The results have important implications for various areas of industrial LNG management. For example, any cost–benefit analysis of new projects providing industrial LNG requires information on the economic value of industrial LNG. In addition, such information is useful for the Korean government's future policies on LNG pricing.