LNG Supply Chain

Natural gas is cheap and abundant, but it is a gas. You cannot load it onto a tanker and ship it across an ocean. Unless you cool it to -162 degrees C, at which point it becomes a liquid occupying 1/600th of its gaseous volume. That temperature transformation is what makes global gas trade possible, and it is not free.

Liquefied natural gas (LNG) requires three capital-intensive stages. Liquefaction plants cool gas using refrigeration cycles, consuming 8-12% of the input gas as fuel. Purpose-built LNG tankers with cryogenic insulation transport the liquid across oceans. Regasification terminals warm the LNG back to gas for pipeline delivery. Each stage adds cost and consumes energy.

Calculate the energy toll. Liquefaction: 8-12% of gas energy. Shipping (boil-off as fuel): 2-5%. Regasification: 1-2%. Total: roughly 15-25% of the original gas energy never reaches the customer.

Does this energy penalty make LNG uncompetitive with pipeline gas?

Distance determines the answer. Pipeline gas loses about 1-2% of energy per 1,000 km to compression. For distances under 3,000 km, pipelines win. Beyond 4,000-5,000 km, LNG's high fixed costs but lower distance-variable costs make it cheaper. Oceans force the choice regardless: there is no pipeline from Qatar to Japan.

LNG turned natural gas from a regional commodity into a global one, with geopolitical consequences that became visible when Europe scrambled for alternatives to Russian pipeline gas in 2022.

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