Diffusion, Costs and Learning in the Development of International Gas Transmission Lines

Zhao, J. (2000). Diffusion, Costs and Learning in the Development of International Gas Transmission Lines. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-00-054

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Abstract

Increasing demand for clean fuels in Eurasia heightens the importance of assessing the prospects for available supplies of natural gas. Eurasia has proposed more than 60,000 kilometers of international gas transmission projects over the next 20 years. Accurately predicting the total costs of gas pipeline development is a challenge. Unfortunately, historical data on Eurasia that could inform an accurate cost assessment are limited. This paper assesses the impact of technological learning and other factors on the costs of gas pipeline development by drawing upon experience with pipeline development in the United States. Construction cost data on onshore pipeline development in the United States during the period 1985 to 1998 did not demonstrate that technological learning led to cost reduction. This was due to the relatively mature infrastructure and the bigger effects of other factors such as types of gas pipeline, economies of scale, and population density. For offshore pipelines, the learning rate was around 24 percent, which was related to the existence of the similar geographical features for offshore pipelines and the relatively immature infrastructure.

Findings in this paper suggest that, in Asia, where pipeline infrastructure is immature, significant technological learning effects can be expected if multiple pipelines are built in similar geological terrain. On the other hand, in Europe where pipeline infrastructure is relatively mature, similar to U.S. onshore pipeline development, learning effects are likely to be small. Other factors such as types of gas pipeline, economies of scale, and population density also will affect costs in both Asia and Europe.

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