Economic appraisal in the upstream gas transport sector

This paper investigates how the methodology of cost–benefit analysis (CBA) can be applied to infrastructure development decisions in the upstream gas transport sector. The proposed method enables the possibility of a systematic appraisal of the values of flexibility in the infrastructure investments and environmental externalities of gas transportation. In order to investigate what CBA can contribute to existing appraisal practices, we present a case study of the appraisal of a recent infrastructure project (Polarled Transport) on the Norwegian continental shelf. A special consideration is given to the environmental externalities of gas transportation. The estimated transport-related emissions to air from the fields associated with the Polarled pipeline during the 40 years of the analysis period are 12,985,563 tonnes of CO2 and 10,060 tonnes of NOx. Using the 2012 calculation prices of CO2 and NOx, adjusted for the corresponding taxes, and using the discount rate of 4%, we obtained the cost of the environmental externality of 3.14 billion 2012 NOK (2.98 billion for CO2 and 0.16 billion for NOx), which were missing in the appraisal of the project. Keywords: upstream gas transport infrastructure, economic appraisal, cost-benefit analysis, gas pipelines, LNG