Co2 Price Sensitivity of Relative LNG and Pipelines Cost-Efficiency

Abstract

The purpose of this research is to examine the effect of a change in CO2 prices on the relative cost-efficiency of a pipeline and LNG systems. Carbon dioxide is the primary greenhouse gas emitted through human activities. High concentrations of carbon dioxide and other greenhouse gases in the atmosphere lead to climate change with its adverse consequences, such as sea level rise, more frequent and severe heat waves, increasing wildfire risks. As a result, many industrialized countries have passed legislation for emissions trading to combat climate change and reduce greenhouse emissions. Energy sector and energy-intensive industries are the main sources of greenhouse gases, and, therefore, they are sensitive to price changes on carbon dioxide emissions. Transportation of natural gas also requires a large amount of energy and, when choosing between constructing a pipeline or LNG system, it is important to take into account the trend of CO2 prices. In order to determine which natural gas transportation option is more cost-efficient, we derived cost estimation models for a pipeline and LNG systems, and found their break-even point at 1 678.69 miles, the transportation distance, at which both systems incur equal costs under the current CO2 price. An analysis of the pipeline and LNG cost behaviors showed that pipeline is more cost-efficient when the transportation distance is less than 1 678.69 miles, and if the distance is longer than the break-even point, LNG is the option. For the purpose to find how sensitive each natural gas transportation project to CO2 prices, we performed a sensitivity analysis by substituting the CO2 price parameter with the values from $0 to $100 with a step of $0.5. Based on the results, we concluded that LNG system is more sensitive to price changes on carbon dioxide emissions and, the higher the price is, the more cost-effective a pipeline system gets even for longer transportation distances. Thus, it can be assumed that LNG systems produce more carbon dioxide emissions than pipelines so the rise of CO2 prices makes them less economically feasible.