OTC, Houston, USA: DNV analyses of worldwide LNG developments reveal that only a handful of significant parameters influence the choice of LNG concept. Analysing and managing the risks relating to these parameters help developers achieve optimal return on their investments.
Before LNG stakeholders commit billions of dollars to re-gasification infrastructures, they must address, at an early stage and properly, the issues associated with the commercial optimisation of their investments.
“Also, by implementing risk management plans and applying risk and reliability techniques to re-gasification projects, risks can be identified and managed and decisions can be made with a better understanding of the total risks and consequences,” says Hans Kristian Danielsen, DNV Energy’s LNG business development manager.
Offshore or onshore?
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 Danielsen.
His thorough analyses of worldwide LNG developments reveal that, by addressing the limited number of parameters properly in the concept development phase, terminal developers are likely to improve the return on their investment by choosing the optimal concept. Setting aside safety and security perceptions, which if seen in isolation could determine the concept selection, he concludes 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.
Safety and security perceptions
Because LNG safety issues are poorly understood by the general public, the industry has faced the constant risk that public perception will be based on fears and falsehoods. The consequence-based licensing process in the United States unfortunately lends credence to fears because it focuses on the worst case rather than providing the public with the real risk picture.
Net present value
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 actual return on the investment, commonly termed the ‘net present value’ (NPV). To put it simply, 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.
CAPEX, OPEX and throughput
The time from the initiation of the LNG project until a positive cash flow is achieved is usually extensive. In addition, high financial risks attributed to the projects require higher discount factors. 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 (throughput), execution risks and, not least, the time to positive cash generation, while OPEX tends not to have a significant impact on the concept selection.
RISKEX
While project investment decisions are traditionally based on capital expenditures and operational expenditures, little consideration is given to risk exposure. By introducing a third component to the economic ‘balance’, namely risk expenditures (RISKEX), it is possible to conduct a balanced, mature appraisal of the uncertainties and risks involved that may have detrimental effects on initial, intermediate and long-term revenue streams. The statistical cost related to unplanned incident repairs, maintenance and reduced or lost re-gasification capacity can be termed RISKEX.
Technology qualification
Technology qualification can play a decisive 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.
Contact
Hans Kristian Danielsen
Phone: +47 959 99 106
E-mail: Hans.Kristian.Danielsen@dnv.com
Date: 2008-05-07