The title “Pipeline vs. LNG” implies competition and perhaps mutual exclusivity. However, most LNG projects require pipelines for inland transport from the terminal to the demand centers and many existing pipeline systems require supply of natural gas from a LNG import terminal due to the natural decline of supply from nearby gas fields or to diversify supply options.
Pipeline infrastructure has been the first means to connect gas production areas to markets. LNG links have developed on a fast track over the last years. Initially LNG was limited to very long distances for which pipeline projects were not economically justified or technically not feasible. To be more precise, LNG supply schemes were limited to bring “stranded gas” to a “stranded customer” such as natural gas from fields in Indonesia and Malaysia to customers in Japan or Korea. Two distinct trends have developed over the past 5 years (i) LNG is becoming feasible for increasingly shorter distances, as examples Italy, France, Malta and Cyprus are launching projects to import LNG from Egypt or Algeria for their markets and (ii) LNG trade has evolved to inter-regional gas trade encompassing the Pacific and Atlantic basin.
The paper will provide an overview of the following issues related to transport and storage of natural gas:
- Technical Applications and Infrastructure Requirements for various LNG and Pipeline Applications such as (i) Traditional LNG Value Chain; (ii) LNG Peak Shavers; (iii) LNG Storage and Transfer Facilities and (iv) Ship based regasification and liquefaction.
- Risk Exposure for Pipeline and LNG Projects. Pipeline based trade involve only pipeline and compressor stations. However, long distance pipelines usually involve transit countries which incidentally include geopolitical interests of the various parties that are involved. A pipeline route that is subject to geopolitical interests may not always be the most economic route. LNG based trade involve a whole investment chain including gas pre-treatment, liquefaction, LNG tankers, and a reception terminal with LNG storage and regasification facilities as well as a connection to pipeline infrastructure, therefore LNG projects are far more capital intensive and complex to develop.
- Different Trade Patterns. Pipeline projects have trading flexibility only to the extent that pipeline infrastructure is in place to redirect the required volumes to the market were the best price can be achieved. Pipeline trade is therefore restricted to regional trade patterns were price differentials are usually marginal. Most LNG supply contracts have nowadays so called “destination flexibility” which makes inter-regional trade possible. LNG cargos can be re-routed from the Pacific to the Atlantic basin to take advantage of arbitrage opportunities between markets with different price mechanisms such as Henry Hub in the U.S and JCC crude oil parity in Japan.