Picking the right LNG concept
24 July 2008
DNV analyses of LNG developments reveal that only a handful of parameters influence the choice of LNG concept. Analysing and managing the risks relating to these parameters help developers achieve optimal return on their investments.
LNG stakeholders must address the issues associated with the commercial optimisation of their investments. Implementing risk management plans and applying risk and reliability techniques to re-gasification projects means that risks can be identified and managed.
Potential terminal developers face the choice between moving offshore or keeping to a traditional onshore facility. “However, the question is: Can new technologies for offshore LNG receiving terminals reduce the actual or perceived risks of a land-based location without introducing significant new dangers and challenges?” says Hans Kristian Danielsen, DNV Energy’s LNG business development manager.
By addressing the limited number of parameters in the concept development phase, terminal developers are likely to improve the return on their investment by choosing the optimal concept. The procedure should involve quantifying the cost of risk, assessing the actual availability of terminals and bringing new technology to the market through risk-based qualification procedures.
LNG safety issues are poorly understood by the public, therefore, the industry has faced the constant risk that public perception will be based on fears and falsehoods.
While the discussions related to offshore terminals versus onshore facilities commonly focus on the cost side of the development, the final investment decision (FID) needs to be based on the ‘net present value’ (NPV). The net present value indicates today’s value of the investment, and is a function of capital expenditures (Capex), operational expenditures (Opex), revenues and the minimum required return.
The time from the initiation of the LNG project until a positive cash flow is achieved is usually extensive. A positive cash-flow some years into the future has little positive impact on the NPV. The final investment decisions for LNG terminals are sensitive to Capex, revenues, execution risks and, the time to positive cash generation, while Opex tends not to have a significant impact on the concept selection.
By introducing risk expenditures (Riskex) to project investment decisions, it is possible to conduct a mature appraisal of the risks involved that may have detrimental effects on revenue streams.
Technology qualification can play a role in the development of offshore LNG concepts. With operators reluctant to use unproven technology, a structured technology qualification process that focuses on high-risk issues and on reducing the risk of unforeseen events provides cost savings and builds confidence that it would work the first time.
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