Energy issues have always been important in international relations, but in recent years may have become even more important than in the past due to the widespread awareness of existing limits to energy sources and negative climate impacts. The course discusses global trends in energy consumption and production, various available scenarios for potential developments in the coming decades, the availability of oil reserves and the evolution of the oil industry. It then discusses natural gas and highlights the differences between oil and gas. It will also discuss renewable energy sources, nuclear energy and EU energy policy. The course aims at providing students whose main interest is in international relations a background on energy resources, technology and economic realities to allow them to correctly interpret the political impact of current developments. It also aims at providing students, who already have a technical background in energy science or engineering, with the broad global view of energy issues that will allow them to better understand the social, economic and political impact of their technical knowledge. ABOUT THE INSTRUCTOR : Giacomo Luciani Scientific Advisor for the Master in International Energy at the Paris School of International Affairs (PSIA) Sciences Po, Giacomo Luciani is also Adjunct Professor at the Graduate Institute of International and Development Studies, Geneva and Director of the Executive Master in International Oil and Gas Leadership. For the period 2010-13 he was appointed Princeton University Global Scholar, attached to the Woodrow Wilson School and the Department of Near Eastern Studies. His research focuses on the political economy of the Middle East and North Africa and on global energy issues. RECOMMENDED BACKGROUND : The course requires no special scientific, mathematical or economic background; all key concepts are clearly and elementarily explained. It is expected that it will be of interest to undergraduate and graduate students in schools where an equivalent course is not offered (this being the case for the vast majority of schools). USPC Sorbonne Paris Cité Supported by Université Sorbonne Paris Cité IDEX Investissements d'Avenir Funded by Investissements d'Avenir - 'ANR. Info : Course content : Licence Creative Commons BY NC SA
Gas transportation: pipelines and LNG
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Del curso dictado por Sciences Po
Politics and Economics of International Energy
730 calificaciones
De la lección
Week #4 : The economics of natural gas
This module presents the Introduction to natural gas, The international gas market, New gas developments
Conoce a los instructores
Giacomo LucianiProfessor and Scientific Advisor for the Master in International Energy
Paris School of International Affairs
-I have already said several times that for gas,
the major problem is the difficulty of transportation
and high cost of transportation.
It is now time to speak about how gas can be transported.
Basically, there are two ways of transporting gas.
One which is the easiest if you wish,
is leaving the gas in gaseous form, as a gas
and then to transport it in a pipeline.
That is the only way of transporting gas that is reasonably efficient.
The alternative to that
is to cool the gas down
and take it to a level of -161.5 degrees centigrade
at which level it liquefies, the volume is shrunk six hundred times
so it becomes much more dense and it becomes a liquid.
It is an inert liquid that will not easily burn or explode,
simply because it is so cold.
Once we have chilled gas to this very low temperature,
it becomes a liquid and this is what we call liquefied natural gas or LNG.
LNG is just a way of transporting gas.
The only thing you can do with LNG is load it on a ship
and take it to a point where it will be turned into gas again
and used in gaseous form.
In the end, gas is almost always used in gaseous form.
Recently, there has been talk about using LNG in ships
to substitute for bunker fuel.
In which case you need to have a very well insulated tank.
This tank will allow the LNG to boil slowly
and you take the boil and utilize it to propel the ship.
Similarly, there has been some interest,
especially in the United States, in using gas for heavy trucks,
for commercial transportation.
That is a possibility
but it is required to have some extremely well insulated tanks
because otherwise the gas will turn into gas again from a liquid.
And it is not going to work very well.
We have these two alternatives, gas pipelines or LNG,
and both technologies have one thing in common:
they require a very large upfront investment.
You need to engage in very large investments
before you can transport the gas.
The difference is that a gas pipeline is a linear structure.
It connects point A to point B
and it only serves clients that lie along the route of the pipeline.
A LNG chain is more flexible,
not only because it can shift from one direction to another
but also because it can serve multiple clients.
A LNG chain is composed of a liquefaction plant,
a set of ships or LNG carriers
and at the receiving end, a regasification plant.
A regasification plant is a relatively simple structure.
It is not very expensive
so you can have a multitude of regasification plants
and the LNG original plant can serve several customers
in different parts of the world.
All you need to do is send yourÏship in one direction or another.
With a pipeline, this is not possible.
What is the advantage of a pipeline?
The cost of transporting gas by pipeline
is directly proportional to the distance.
For short distances, a pipeline is normally better.
But as distance increases,
the cost of transporting gas by pipeline increases rapidly.
For long distances, a pipeline suffers.
Another key element is the dimension of the pipe.
The unit cost of transporting gas will increase less
than the size of the pipeline.
The cost of the pipeline increases as a function of the diameter of the pipe
but the volume of gas that you can transport through the pipeline
increases as a function of the square of the diameter.
So you have an advantage the larger the pipeline is.
LNG has an advantage for long distances
but it suffers because there is a fixed cost at the beginning
that is the cost of liquefaction.
So for very short distances, it will not pay to liquefy the gas
because you have to suffer an initial cost
which you will not be able to compensate for.
If you have long distances,
then it may pay to liquefy the natural gas and transport it as LNG.
For long sea passages, LNG is essentially the sole alternative.
If your client is in Japan or South Korea and you are in the Middle East,
there is no alternative for you but to liquefy the gas
and send it as LNG.
In the slide that you see now on your screen,
we represent the transportation cost for gas
by pipeline, by LNG, according to the size of the pipeline,
as well as the transportation cost for oil and coal.
The cost for oil and coal are the two lines
lying almost at the bottom of the chart.
You can see that in the case of oil or coal,
it is possible to transport these materials
over very long distances, 7 or 8 000 miles,
and the increase in the cost is not very important.
Just a few cents are added to the cost of the oil or coal
if they are transported over long distances.
In the case of gas, the situation is quite different.
Transportation by pipeline is represented
by the lines that originate from the origin, from point zero.
That is because if you have zero distance, you will have zero cost.
But then, as you can see, the cost increases quite rapidly,
especially for smaller pipelines, which is the red dotted line.
As the size of the pipeline increases, the cost increases less rapidly,
until you reach the largest size which is currently in use,
the 56-inch pipeline.
That allows you to transport gas over significant distances
of close to 3 000 miles and still be competitive with LNG.
For distances exceeding 3 000 miles, essentially LNG is the only solution.
LNG, of course, does not start from the origin
because at the beginning, you have the cost of liquefaction.
That is about four dollars per million Btu,
totally independently of the distance that you have to cover.
So you start from a level of four dollars per million Btu
but then the increase in cost is much slower.
It is not as steep as for a pipeline.
So you can transport gas over very long distances
at a cost which is still significant
but is less overwhelming than with a pipeline.
The next slide tells you where pipeline gas prevails
and where LNG prevails.
The conclusion is very simple.
Pipelines are utilized to import gas into Europe
and export gas out of Russia.
So pipelines are the backbone of the Russian-European gas trade.
Europe and Russia essentially and, actually, exclusively,
trade gas by pipeline.
In contrast, on the right hand of the chart,
you can see that LNG is used primarily to export gas out of the Middle East
and into Asia-Pacific or to export gas within Asia-Pacific.
So the market for LNG is primarily in the Far East,
in countries such as Japan, South Korea, Taiwan or China,
that are major consumers of gas which they import from the Middle East.
The last slide shows the distribution of gas in different markets.
It shows that essentially
we have three entirely separate gas markets in this world.
One is the North American market,
which today essentially does not trade with the rest of the world.
You have a trade within North America
in between Canada and the United States,
in between the United States and Mexico
but very minor trade with the rest of the world.
Then, you have the Far East market which is essentially a LNG market
and receives gas from various origins in the Far East itself
or from the Middle East and some also from Africa.
Finally, you have the European gas market,
which is essentially a pipeline gas market.
It receives gas from Russia or North Africa primarily by pipeline,
some of it also by LNG from Qatar or Nigeria.
These three markets are separate
and the price of gas is completely different
on each of these three markets.
Gas is very cheap in North America,
it is very expensive in the Far East
and it is in a medium position in Europe.
The reason why we have such large price differences is
that gas does not travel easily
and therefore, it cannot be taken commercially
from North America, where it costs less
to the Far East, where it costs the most.
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