LNG regasification – Effects of project stage decisions on capital expenditure and implications for gas pricing

Abstract

With mounting concerns over energy security and climate change, natural gas has seen significant growth in demand during the last two decades. Natural gas has only half of the carbon footprint of coal and has consequently become an important transition fuel as the world economy shifts away from more carbon-intensive energy sources in favour of lower-carbon alternatives. As a result, a substantial amount of capital is being invested around the world to accelerate and create natural gas and liquefied natural gas (LNG) infrastructure. LNG has become the fastest-growing sector in the international gas trading business, but its promise as a transition fuel has been complicated by the rising capital costs associated with delivering LNG projects and infrastructure around the world. Towards shining a light on this problem, this paper offers an analysis of the capital costs of LNG regasification terminals in different regions and puts forward benchmarks in several key areas to show how these spending trends vary and may be interpreted. The investigation highlights the relative importance that decisions can have on capital investment costs in the earliest stages of a project, and sheds light on the factors that most significantly affect capital expenditure and have implications on gas price. Specifically, the analysis identifies two important variables that have the most significant impact on these capital costs: (1) the ratio of LNG storage volumes to gas send-out, and (2) the “economy of scale” factor, calculated here in reference to ratio of capital expenditure per millions of tonnes per annum of capacity.