Reducing Time to First Gas: Lessons Learned in Expediting and Informing International Investment Chain Decisions

Abstract

Long-lead and risk issues in global gas developments are primary threats to value and project efficiency. Appropriate decision focus and a value-chain context provide practical ways to shorten the time to first gas as well as illuminate options to add value. Decision-based uncertainty management skills become paramount for success. The monetization of gas, particularly in liquefied natural gas (LNG) projects, requires large capital investment in most if not all links of the gas value chain from production to end use. Companies which invest in a single component of the value chain, such as non-integrated gas producers, must understand the value of and risks inherent in every link in the chain, as gas will be priced in relation to its final point of sale. Final sale price as well as the effects of processing and capacity limitations ripple their way upstream to alter the timing, demand, and viability of the upstream investment. Investment decisions and the associated risks inherent in LNG projects are legion. Although operating companies can mitigate some of the risks through experience and partnering, many above-ground factors (uncertainties) are outside of investors' control, including market evolution, regulatory changes in either the producers' or the end users' markets, technological advances/failures, as well as run-ups in capital costs of raw materials such as steel. Because of these and other uncertainties, to assess or plan the monetization of gas using an advocacy-led set of assumptions is not optimal. A clear, unbiased and integrated decision management process both optimizes the investment and shortens the time to first gas. Introduction Liquefied natural gas (LNG) projects are good examples of complex global gas development projects with huge capital investment requirements and are the focal point of this paper. To build a commercial LNG project from gas production to point of final sale actually requires investment in and development of several capital projects in the global gas chain. These linked or integrated projects serve to produce, treat, transport and sell the gas into specific markets as illustrated in Figure 1.1. These projects are joined together into a value chain via at least 16 major commercial contracts, beginning with a production sharing contract at the wellhead and ending with a gas sales agreement into the end use market. The entire set of investment decisions in the LNG chain may be driven by objectives such as being able to book gas reserves by a certain date, optimizing the entire gas portfolio of assets, and in the case of companies with a portfolio of LNG assets, the potential for arbitrage and being able to leverage and trade around each LNG asset.