Abstract In this study, a thermodynamic analysis for the liquefied methane gas (LMG) engine with the variation of compression ratio (CR) was conducted through theoretical and experimental investigations. Firstly, the equations for thermodynamic cycle efficiency were further corrected based on the previous studies, in which the losses due to heat release rate (HRR), exhaust valve opening (EVO) timing, specific heat ratio, incomplete combustion and heat transfer were considered. Then, the sweeping test of CR was conducted on an LMG engine. On this basis, the thermodynamic cycle process was studied and various kinds of energy losses were analyzed. The results show that the improvement of indicated thermal efficiency by increasing CR mainly depends on engine operating conditions, the maximum of which occurs at high load and is close to the theoretical value (4.2 percent points). The actual cycle efficiency of LMG engine is mainly influenced by the specific heat ratio of medium gas, followed by the heat transfer loss and the effective expansion ratio (EER) loss. Compared with combustion duration, the combustion phase plays a much more important role in EER loss. All these have provided theoretical basis and direction for the improvement of actual thermal efficiency of LMG engine.