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© POTEN & PARTNERS 2008 CONFIDENTIAL
Clarifying the path to high-quality LNG investment decisions
AOG 201511 March, Perth
Stephen Thompson, Asia Pacific Regional ManagerCharles N. White, Senior Consultant
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© POTEN & PARTNERS 2009 CONFIDENTIAL
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Poten: oldest and largest specialist LNG consultancy
POTENCovers all major
functions
COMMERCIAL
SHIPPING
MARKET
TECHNICAL
MERLIN
• Worldwide reach
• Support from strategy to execution
• 40 full-time professionals, 5 senior advisors and over 600 years of energy experience
• Consultant experience as senior decision makers in leading companies
Unique breadth and depth in the industry
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© POTEN & PARTNERS 2009 CONFIDENTIAL
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The case for adopting high quality decision making (QDM) practices
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These are definitely turbulent times
In January 2014:• Asian spot LNG prices hit $20/MMBtu• European re-exports reached 0.5 MMt/m• Henry Hub surged to $6/MMBtu• CNPC entered Yamal with 20% equity• Petronas sanctioned second FLNG vessel
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The path to high-quality LNG investment decisions
• Under today’s business environment, making the right decision is tougher than ever
• The right decision is like a good marriage• Complementarity across disciplines and geography• Balance between multiple goals• Discipline
When complexity and value are high, structured Decision Quality processes
allow qualified teams to achieve success
ThoughtWorld
ActionsWorld
DECISIONMAKING
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The stage-gate development process is not a cure-allLike a line of elephants
When does “no turning back” change from being the outcome of sound process to an a priori commitment?
Screen Assess Develop Execute
The stage-gate rationale: relative cost of fixing design errors
x x xA key objective of stage-gate project development is to avoid looping back
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0%
10%
20%
30%
40%
50%
60%
Pluto QCLNG GLNG Gorgon APLNG Wheatstone Ichthys
The first generation of “stage-gate process” projects
Venture cost overruns
Note: Ichthys increased its budget by 70% shortly before FID
Study of Top 190 Oil & Gas ProjectsAverage delay of 12 months
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New tools depend on user will and skill
• First generation practices• Pros & Cons• Value Engineering• Economic models with sensitivity analysis• Decision trees
• Newer tools• Comprehensive, structured processes• Dynamic optimization• Portfolio simulation• Advanced Multi-Criteria Analysis / with spatial data bases
• Adoption is often • Slow • Driven by ‘evangelists’ lacking detailed specific knowledge• Blighted by pitfalls
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Garbage in, garbage out (pitfalls)
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Error #1: Professional tunnel vision
For LNG investments, good decisions require a broad view of the value chain• Optimization is holistic and iterative – project teams must consciously avoid
fragmentation
FRAMING
TECHNOLOGY FOCUS
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Error #1: Professional tunnel vision
For LNG investments, good decisions require a broad view of the value chain• Optimization is holistic and iterative – project teams must consciously avoid
fragmentation• The best “technical solution” addresses commercial + shipping + marketing
TECHNOLOGY FOCUS
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Optimization vs regret minimization• In this schematic decision tree, the
optimal decision would be to “buy” Australian LNG
• Five “wins” vs. two “losses” • Regret-minimizing decision is “do
nothing”• Zero possibility of a loss
• Competing agendas if hidden undermine decision quality
• Errors #1 and #2 lead to teamwork in name only
Error #2: Talking past each otherHIGH
WIN
Oil Price
NOLOW
WIN
HH availability
HIGHYES
HIGHTIE
Oil Price
HH PriceLOW
WIN
HIGHWIN
LOW Oil Price
NOLOW
WIN
BUYHH
availability
YESHIGH
LOSE
Oil Price
LOWLOSE
Purchase Decision DO NOTHING
$0
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Error #3: Introspective data bias
• Effective benchmarking means that four conditions are met• Comparative data includes a rich enough variety to stimulate alternative thinking• Data compared is really comparable – not too noisy to be useful• Data can be interrogated to uncover roots of divergence and pros & cons of change• Iteration between benchmark data and design improvement is fast enough to create a “virtuous
circle” of improvement• Few projects engage in effective benchmarking
Benchmarking at the highest level
Project ID
$ million
EPC contractor margin
Engineering charges
Labor cost
Bulk materials cost
Supply/Erect materials cost
Equipment cost
A B D EC F G H I
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Assessing/achieving decision quality1 Appropriate frame
2 Clear Valuation System
3 Creative, doable options
4 Useful information
5 Logical reasoning
6 Commitment to Action
7 Decision Quality Assurance
8 Timely monitoring/review
• Project teams suffering errors #3 and #4 get caught in decision limbo
• Decision quality assurance checks (DQA) should be done by external experts not emotionally invested in project decision trajectory
Error #4: Loss of objectivity
Your “weighty” decision
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Real life challenges ahead for major projects
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Coming trials demand high quality decision making
Major pending projects • Australia• East Africa• SE Asia
Key technology challenges• Long-reach subsea tiebacks
still face well-known issues• “New” technologies face
many unknowns
Key risks • Non-technical• Technical
Jansz-Io will soon produce as subsea tieback from >120km offshore
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Screening may be needed to identify a manageable set of options
• After a solid framing effort has clearly established the decision context• The team must identify a meaningful range of options to evaluate
Poten’s Opportunity Screening Tool is tailored to each client’s culture,values, and decision criteria
ACriteria
BCriteria
CCriteria
DCriteria
ECriteria
FCriteria
GCriteria
HCriteria
ICriteria
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Quality decision making practices lead the way to high quality LNG investments
• Strong QDM practices deliver value amid turbulence
• Awareness of decision traps is helpful but not sufficient
• Poten’s rational, highly interactive processes find the highest value path forward for LNG investors
• Liquefaction: Detailed schedule and cost simulation identified major risks off lead sponsor’s “radar screen”
• Shipping: Dynamic simulation of LNG carrier fleets identified ~$0.5 billion savings for a major IOC• Marketing and procurement: Dynamic optimization to achieve risk/ return portfolio balance and
negotiate contract pricing terms• Project benchmarking and screening
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NATURAL GAS & LNG CONSULTING CONTACTS:
AMERICAS (NEW YORK)Contact: Jim Briggs
Email: [email protected]: +1 212 230 2000
EUROPE, M. EAST, AFRICAContact: Graham Hartnell
Email: [email protected]: +44 20 3747 4820
ASIA PACIFICContact: Stephen Thompson
Email: [email protected]: +61 8 6468 7942
AMERICAS (HOUSTON)Contact: Doug Brown
Email: [email protected]: +1 713 344 2378
