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Abstract

The LNG industry has been experiencing significant changes in recent years in terms of price volatility, market growth, supply increases and infrastructure expansion. To support these developments, LNG pricing models, ownership structures and commercial arrangements have been evolving. Given these dynamics, a study of the distribution of returns along the LNG chain is critical to the key parties involved, namely private investors and host government. This paper takes a holistic approach by developing an integrated economic model of upstream, midstream and downstream segments of the LNG chain. An optimization framework which provides for reliable investment decision-making is used for finding the optimal netback pricing parameters, subject to appropriate bounds being placed for instance on the minimal acceptable rates of return. A hypothetical case study with typical parameters is used to demonstrate the approach. The optimal distribution of value as well as the commercial arrangement from a government perspective is found to be significantly different from that of the investor. A simple multiobjective approach is used to identify compromise solution sets. Ownership by a state-owned energy company was also investigated in terms of optimal distribution of returns, capital allocation and commercial arrangement.

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Optimal Distribution of Economic Value along the LNG Chain from Government and Investor Perspectives

Abstract

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