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| Fig. 1: LNG Carrier. (Source: Wikimedia Commons) |
Natural gas is a cornerstone of the global energy economy, powering homes, industries, and electricity grids worldwide. However, because natural gas production often occurs far from consumption centers, effective transportation methods are essential to bridge the supply- demand gap. Transporting natural gas across vast distances, whether via pipelines or as liquefied natural gas (LNG), is fundamentally an economic challenge. Although environmental considerations like emissions and methane leakage often surface in the discussion, from a long-term, global perspective, the eventual conversion of extracted carbon into carbon dioxide is inevitable. In other words, the detailed tracking of at which step emissions occur does not materially change the carbon endgame. Instead, what matters is the cost of getting the gas from where it is produced to where it is consumed. The core of the problem, then, lies in evaluating the economics of the different transportation methods.
Liquefied natural gas (LNG) transport is a sophisticated process designed to move natural gas efficiently across long distances, particularly over oceans where pipelines are not feasible. The process begins with the liquefaction of natural gas at facilities near production sites, where the gas is cooled to approximately -162 degrees celsius to convert it into a liquid. [1] This reduces its volume by about 600 times, making it practical for storage and transport. Transportation of liquefied natural gas involves shipping LNG over long distances in a special purpose LNG carrier (See Fig. 1), which includes good insulation and a double hull design to provide more strength and safety. Once the LNG reaches its destination, it is unloaded at regasification terminals, where it is warmed back into a gaseous state distributed. Pipeline transportation involves moving gas under pressure through a network of pipes. At the starting point, gas is compressed to a high pressure by compressor stations, which maintain enough force to push it through the pipe. As gas travels along the pipeline, friction and elevation changes cause pressure drops, requiring additional compressor stations placed at intervals to re-pressurize the flow. Pipeline routes are carefully planned to minimize obstacles, and specialized equipment ensures the gas remains clean, dry, and meets safety regulations.
LNG economics are closely tied to the underlying thermodynamic work required to cool natural gas to cryogenic temperatures. This intensive refrigeration process, driven by complex refrigeration cycles and compression stages, forms the scientific backbone of liquefaction costs. Capital expenditures vary widely depending on factors such as location, gas composition, and project type. For instance, brownfield expansions in established areas like the U.S. Gulf Coast can achieve liquefaction costs around $700 per ton per annum (tpa), translating to roughly $3-4 per MMBtu. [2] These lower costs result from reusing existing infrastructure and benefiting from stable, cost- effective labor markets. In contrast, greenfield projects in remote regions, where supply chains are strained, and skilled labor is scarce, can see costs escalate to $1,500-2,000/tpa, or $6- 8/MMBtu, especially for rich gas feeds that require additional process steps to remove liquids. [2] Location multipliers are significant: remote sites may incur a 30% cost increase over U.S. baselines, while projects in places like Northwest Australia can face a 70% premium due to logistical and labor challenges. [2] Ultimately, while the efficiency of thermodynamic cycles sets the minimum theoretical energy requirement, real-world capital and operational challenges reflect a different reality. For example, advantaged countries like Qatar have a construction cost of $500/ton per LNG plant while the average cost of an LNG plant is much higher. [3] Midstream (shipping) costs for transporting natural gas remain relatively stable on a per-unit basis, ranging from $.59/MMBtu to $.68/MMBtu. [3] The stability of shipping costs compared to the wide variations seen in upstream costs stems from the fact that transportation expenses depend more on route characteristics, vessel costs, and fuel consumption than on the intrinsic cost of producing LNG.
Natural gas pipelines are highly capital-intensive infrastructure projects, with most expenditures front-loaded at the outset. The unit cost of a pipeline reflects several main factors: length, capacity, and the complexity of the route. Onshore pipelines in relatively straightforward terrain might range from around $30,000 to $200,000 per km-inch (a metric combining length and diameter), with the lower end corresponding to favorable conditions and the higher end reflecting challenging environments. [4] Offshore routes can be significantly more expensive due to thicker pipe walls, specialized insulation, and the need for highly specialized pipelaying vessels. Most of the cost of the pipeline is absorbed by the actual pipeline build. Compressor stations also add some cost, often running about $2-4 million per MW of installed power. [4] Compressor stations require fuel (often natural gas) and maintenance, adding about $0.1-0.4 per MMBtu in operating expenses depending on distance and efficiency. [4] Taken together, these figures highlight the capital intensity and complexity of pipeline projects. Lower-end estimates apply in relatively simple, onshore settings with accessible labor and materials, whereas costs escalate quickly as projects encounter difficult terrain, remote locations, or undersea routes. Depending on conditions, transportation costs for well-sited, efficiently built pipelines might be under $1 per thousand cubic meters per 100 km (roughly $0.5 per MMBtu per 1000 km), while challenging routes can push this above $10 per thousand cubic meters per 100 km. [5]
The economics of transporting natural gas, whether via LNG or pipelines, ultimately hinge on balancing technical feasibility, distance, and local cost factors. LNG offers flexibility, especially for intercontinental routes where pipelines are impractical, but faces significant capital and operational expenditures related to liquefaction, shipping, and regasification. While studies show that well-situated brownfield projects in stable environments can liquefy gas at around $3-4 per MMBtu, remote greenfield sites can see costs double due to higher labor, material, and logistics expenses. Pipelines, on the other hand, can deliver gas efficiently over moderate overland distances but require substantial initial investment and ongoing compressor- related expenses. In both cases, location-specific can increase costs heavily. Taken together, these factors mean that there is no one-size-fits-all solution. Each projects economics must be carefully assessed considering its geographic setting, market conditions, and long-term strategic goals.
© Sanjay Swamy. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
[1] S. Jamali and M. Yari "Recovery of Liquefied Natural Gas Cold Energy in a Clean Cogeneration System Utilizing Concentrated Photovoltaics." J. Clean. Prod. 350, 131537 (2022).
[2] Brian Songhurst, LNG Plant Cost Reduction 201418 , (Oxford Institute for Energy Studies, 2018).
[3] Qian Zou et al., "Global LNG market: supply-demand and economic analysis" IOP Conf. Ser.: Earth Environ. Sci 983, 012051 (2022).
[4] G. Molnar, The Palgrave Handbook of International Energy Economics , ( Palgrave Macmillan, Cham, 2022).
[5] "BP Statistical Review of World Energy," British Petroleum, June 2022.
