Transportation of natural gas : The impact of price variation on the choice between LNG and pipeline infrastructure

Abstract

The long-distance transportation of natural gas, either in the form of liquefied natural gas (LNG) or by pipeline, is of great importance for both exporting and importing countries. Exporting countries depend on the revenue from exports. Energy security is a major concern for importing countries, especially for the European Union, which is dependent on imports. Long-distance transportation also requires large-scale capital investment in infrastructure involving both states, state-controlled companies and private companies.

Both LNG and pipeline transportation require the burning and thus the loss of a portion of the natural gas that is transported. In the case of LNG, it is spent on liquefaction, regasification, boil-off and fuel for shipping; in the case of pipelines it is used as fuel for the compressor stations. This thesis analyses the two transportation options and evaluates how variations in the pricing of natural gas and of greenhouse gas emissions affect the relative viability of pipelines and LNG respectively.

The thesis concludes that the distance from the well to the consumer and the volume of natural gas transported has the greatest impact on the relative transportation costs. However, the pricing of natural gas and greenhouse emission also influences the relative viability of LNG and pipeline transportation. More natural gas is required for the LNG process which makes LNG transportation more exposed to variability in natural gas price than pipeline transportation.