Natural gas – new model for choosing the right transport option
In a recently published article Marte Ulvestad and Indra Øverland develop a formal model for comparing the costs of the two main ways of transporting natural gas. What is the best option – liquefied natural gas or pipelines?
The article “Natural gas and CO2 price variation: impact on the relative cost-efficiency of LNG and pipelines” by Marte Ulvestad, formerly in NUPI’s Department of International Economics, and Indra Øverland, Head of NUPI’s Energy Programme, was published in the International Journal of Environmental Studies.
- Governments and companies in the natural gas sector have to make multi-billion dollar choices between LNG and pipelines for transporting natural gas, but little research has been carried out into how varying prices for natural gas and for CO2 emissions affect the relative cost efficiency of the two main transport options, Indra Øverland explains.
Main determinants at current prices
The two authors conclude that at current price levels for natural gas and CO2 emissions the transport distance and the volume of natural gas transported are the main determinants of transport costs.
Magic number: 9100
Ulvestad and Øverland state that for distances below 9100 km, LNG is more exposed than the pipeline alternative to variability in the price of natural gas and CO2 emissions. Such price increases would be favourable for pipelines relative to LNG.
- However, prices for CO2 emissions would have to increase dramatically to have any impact on the choices made, something which does not seem likely under the international climate regime as it is currently evolving, Øverland says.