This article reports the effects of air gap on insulation thickness and life cycle costs for different diameter steel pipes. The life cycle cost analysis based on heat degree days is used as a calculation method. Under climatic conditions in Afyonkarahisar, Turkey, using several fuel types and various insulation materials, the annual total costs, energy saving and payback period are evaluated for the insulation of different diameter pipes and also for use of an air gap. The results show that under all conditions, the lowest optimum insulation thickness was found for natural gas and XPS insulation material. Considering all variable parameters in the analysis, optimum insulation thickness, energy cost savings and payback periods for all air gap values varied within the intervals 0.3-25 cm, 20 to 423 $/m-yr and 0.8-2.2 years, respectively. In conclusion, in terms of the effect of air gap on insulation thickness and life cycle costs, for small diameter pipes air gap is effective, whereas for large diameter pipes the insulation thickness plays significant role. (C) 2017 Elsevier Ltd. All rights reserved.