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Part of the process

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LNG Industry,

Megaprojects require multi-billion dollar investments, with intense scrutiny of technical assumptions, operational contingencies and commercial risks. The sheer level of investment, range of stakeholders and often significant technical challenges of these projects means that the involvement of specialist LNG consultancies and experts is necessary to ensure the right decisions are made from the outset.

In their quest to enhance the robustness of planning, de-risk the project, and facilitate accurate forecasting of financial returns, many companies and their due diligence leads are now reinforcing this expertise with robust, scientific decision support tools, such as business simulation software, from the feasibility and pre-FEED stage. Business simulation technology enables all of the key decision variables to be mapped dynamically, thus creating a virtual worldview of future operations, without incurring real-world risk.

While the use of simulation in LNG projects is nothing new, it has, in the past, typically been deployed further along the project lifecycle as a validation tool – most commonly at the FEED stage. However, more LNG projects are recognising the value of using simulation at an earlier point in order to compress the decision making cycles and improve commercial risk management from the outset.

Real world performance

One recent example of where simulation is expediting performance in LNG is via a major US energy company. In order to mitigate risk, ensure investment was channelled appropriately and gain accurate foresight into the finite capabilities of its proposed new facility, simulation was used to gain a real-world picture of these capabilities at an early stage, enabling organisations to accurately assess tolerance and productivity levels, thus predicting future performance and creating a solid business case for investment. In doing this, the team was able to pursue the project with absolute confidence that decisions were based on the best, most accurate and real-world data, and represented a robust projection of future performance. In achieving this at the proposal stage, risks were better understood and managed effectively in contracting arrangements.

Another company in the same region turned to simulation in order to validate its investment case, optimise processes and procedures, and establish the appropriate resourcing levels necessary to maximise operational performance and efficiency. This included comprehensive analyses of the complex, interdependent processes involved in optimising production; incorporating planned and unplanned downtime; cause and effect of delays; and the impact of proposed changes, such as increased demand. Through understanding future performance and risk before implementing prospective modifications, planners were able to effectively ‘de-risk’ the project, ensuring validation and verification to support investment cases at each stage of the project’s lifecycle.

Other trends that are expanding adoption rates of simulation across the LNG industry include the emergence of new types of facilities, along with equity participation and equity lifting.

Floating facilities

Floating LNG (FLNG) projects, which by their nature have less of a legacy from which to base assumptions and reach decisions, are under pressure to rapidly compress the feasibility studies, pre-FEED and FEED to Final Investment Decision (FID) phases. Therefore, they are adopting simulation to undertake much faster, earlier, and more agile scenario evaluations.

Shell’s AUS$12 billion Prelude FLNG project, 200 km offshore Western Australia, is set to be the world’s first FLNG vessel, with many other players either investigating the potential of projects, or in the early stages of development. In recognition of the opportunity, others are accelerating development in order to gain early mover advantage.

In these projects, partners, financiers and legal advisors are all engaged at a much earlier stage to strip time and cost from the technical design, commercial scrutiny and crafting of agreements, thus expediting decisions, which will lead to buy-in and market readiness.

These floating facilities face even greater challenges than their land-based counterparts, as every element of a conventional LNG facility has to fit into a much smaller area – typically a quarter of the size – while delivering increased flexibility. Once in operation, substantial parameters remain, with wave motion in particular creating unprecedented challenges. Containment systems need to be capable of withstanding the damage that can occur when the sea’s waves and current motions cause sloshing in partially filled tanks. Product transfers in the face of wind, waves and currents in the open seas also present vast amounts of variability, which needs to be factored in.

These natural uncertainties must be addressed at the outset of a project in order to ensure that decisions are robust, and that teams can move forward with design in a collaborative and confident manner, with buy-in from all stakeholders. The effectiveness and productivity of solutions, such as loading arms, hose-based systems for use in calmer waters, and tandem transfers in rougher conditions, must be evaluated and tested in a virtual environment in order to assess and justify investment, as implementing these options to test in a live environment is not an option. With many players all racing to get to market first, the cumbersome process of testing in the real world is too risky, too expensive and prohibitively time-consuming.

At the other end of the supply chain, the development of floating storage and regasification units (FSRUs) – where the natural gas is brought back to ambient temperature and pressure levels – is subject to similar uncertainties, with additional complexity derived from the fact that they are often created through modifying existing floating facilities and carriers. Return on investment (ROI) can be much faster than an equivalent land-based facility, but this is wholly dependent on ensuring the right design and expediting it through to completion. Given that a robust design involves aggregation of shipping and energy technology, commercial skills and marine operating experience, combined with very little legacy or industry experience to reinforce decisions, there is pressure to adopt the right approach from an early stage in order to get it right.

Equity participation and equity lifting

As global LNG trade patterns change, gas buyers are becoming more proactive, with more free on board (FOB) purchases coming into favour. Equity participation in projects and equity lifting is seen as key to greater supply flexibility and lower prices that are linked to gas or hybrid oil and gas benchmarks. However, this move away from stable, long-term contracts in pursuit of flexibility brings yet more planning and contractual uncertainty. Compound this with the diversification of small scale, more agile LNG technologies, emergent trading hubs and wider LNG uses, and it is clear that it is only getting harder to find the best answers. More flexibility brings more options into consideration, which take longer to evaluate.

Those crafting and scrutinising terminal use and shipper contracts are turning to science – in the form of business simulation modelling – to analyse these greater marketing and commercial options when balancing the different needs of multiple shippers. Increasingly, this includes framing lending and borrowing policies and conflict resolution. Time is of the essence in order to clarify suggested volumes to buyers, and to optimise carrier size, number and combination.

Some LNG projects, especially those with FLNG or FSRU facilities, have been trying to get typical scheduling systems to work through the complexity and interdependencies. Whilst most systems can handle the short-term scheduling horizons, they fall short of supporting the longer-term planning horizons and real-world commercial risk factors, such as knock-on effects of seasonal demand nomination ranges, wind, wave and larger weather disruptions. Long-term contracting of the past needed relatively straightforward annual delivery programmes (ADPs) for one-to-one or one-to-many shippers/buyers to be calculated and agreed. These ADPs are reassessed and fine-tuned relatively infrequently, but times have changed and stakeholders’ interests are too diverse for those simplified techniques and tools. Fortunately, LNG logistics simulation has evolved to now handle this more dynamic push/pull of many-to-many shipper/buyer combinations to generate, test and optimise annual delivery plans and achievement rates. Used well, it also puts time back on the decision maker’s side by processing this complexity faster than ever before.

Early mover advantage

With the LNG market set to grow approximately 7% per year for the next 10 years, those who steal the march on the competition will be at an obvious advantage. Up-front planning is critical to megaproject success, whether it is for a major new terminal, FLNG facility or creation of an FSRU. In order to secure investment, LNG providers need to reach a high level of certainty where investors are ready to make a decision. If simulation is utilised during the feasibility and pre-FEED stage, this certainty is provided from the outset, meaning that less is spent on wasted experimentation and consultants’ reports during FEED, potentially reaching FID quicker. By the time the bulk of the investment takes place, the project team will have a precise idea of how everything will look and operate in all scenarios, eventualities and circumstances, guaranteeing a solid ROI for investors, as well as a project that comes in on time, on budget and on plan.

As the market becomes increasingly mature, early mover advantage will become more important and any means of expediting time to market not only reduces costs, but secures an edge on the growing competition. Projects are becoming increasingly diverse, and the emergence of new business models, whether from floating facilities, innovative tolling, equity participation and lifting arrangements compound the need for tools to reinforce expertise from industry consultants, help foster collaboration to reach decisions quickly, identify the quickest, most cost-effective route to efficient operations and achieve consensus on the optimum route forward.

In the LNG world, simulation is fast becoming a fundamental part of the process. Those who choose to go it alone will find themselves at a major disadvantage as this fast-growing, rapidly diversifying market continues to heat up.

Written by Steve Hemsley, Lanner.

Edited by David Rowlands

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