Natural Gas and Co₂ Price Variation: Impact on the Relative Cost-Efficiency of LNG and Pipelines

Abstract

Natural gas is often promoted as the most environmentally friendly of all fossil fuels, and liquefied natural gas (LNG) as a modern and efficient way of transporting it. Some research has been carried out into the local environmental impact of LNG facilities, but almost none into aspects related to climate change.

What actually causes most greenhouse gas emissions, LNG or pipelines? This question is highly relevant for climate change, but in practice the choice of transport option for natural gas in the real world will depend on the cost of CO₂ emissions. How these costs play out depend on the volume of gas to be transported, the distance etc.

This article therefore develops a formal model for comparing LNG and pipelines. In particular, it evaluates how variations in the prices of natural gas and greenhouse gas emissions affect the relative cost-efficiency of these two options.

The paper concludes that, at current price levels for natural gas and CO₂ emissions, the distance from field to consumer and the volume of natural gas transported are the main determinants of transport costs. The pricing of natural gas and greenhouse emissions influence the relative cost-efficiency of LNG and pipeline transport, but only to a limited degree at current price levels. Because more energy is required for the LNG process (especially for fuelling liquefaction) than for pipelines at distances below 9100 km, LNG is more exposed to variability in the price of natural gas and greenhouse gas emissions up to this distance. If the prices of natural gas and/or greenhouse gas emission rise dramatically in the future, this will affect the choice between pipelines and LNG. Such a price increase will be favourable for pipelines relative to LNG.

Keywords: LNG, Liquefied Natural Gas, Natural Gas, Pipeline, CO2, Greenhouse Gas Emissions, GHG, Carbon Footprint, Lifecycle, Climate Mitigation, Climate Change