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LNG Project Evaluation Fundamentals
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LNG Project Evaluation Fundamentals

2-Day Training Course: A Practical Guide to LNG Project Decision Making. This 2-day intensive course provides the necessary insight into how LNG projects are financially evaluated. Receive a complete range of tools & models to enable the basic evaluation of your own project

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overview

Key Learning Objectives

  • Review the global LNG Industry including current Australian projects
  • Recap global natural gas prices: Henry Hub, UK NPB and the Japan’s JCC
  • Discuss the indexation of the natural gas price to the oil price
  • Review the concept of Energy Equivalent Pricing of natural gas
  • Detail how LNG is priced with reference to the “S” curve formula
  • Discover how to forecast natural gas prices in all markets
  • Consider the “tools of the trade” used to evaluate projects
  • Identify the major capex and opex expense line items associated with a typical LNG project
  • Learn to build a financial model to analyse the suitability of an LNG project

About the Course

This 2-day intensive course is designed to provide participants with a set of professional skills necessary to undertake a comprehensive evaluation of an LNG Project. The course begins with an overview of the global natural gas and LNG industry and details the current status of Australian LNG projects.

This is followed by a detailed discussion of the relationship between the price of natural gas and the price of oil, followed by a consideration of global natural gas price trends (Henry hub, NBP, the Japanese JCC and China’s Guangdong LNG price).

Participants will also learn how to forecast the price of natural gas. This is followed by the examination of the price relationship between the spot and the futures markets for natural gas and convergence theory.

The “S” curve price model for LNG will be developed using practical examples. A detailed discussion of project evaluation “tools of the trade” will be developed to show how to objectively assess an LNG project. Throughout this session, the material is soundly supported by computer based modelling.

The second day of the course delves into the basic business model of an LNG joint venture partnership, the choice of a gas hub and a FLNG platform, the role and importance of the PSA and SPA.

A detailed discussion and analysis of the numerous “big ticket” capex and opex capital budget line items is developed. This information is then developed into a working computer based financial model of an LNG project. The course concludes with a discussion of probability analysis using decision tree theory to assess the merits of multiple and competing LNG projects.

Who Will Benefit

Recommended Pre-Requisite: LNG Fundamentals

  • Professional services – lawyers, accountants, auditors, consultants with direct or indirect business in the oil and gas industry who wish to improve their understanding of, and service to, their clients
  • Public servants employed by the federal and state governments in treasury, finance, procurement, state development, infrastructure and planning with managerial and oversight responsibility in the oil, LNG and CSG industries

Terms & Conditions

To read the training course terms and conditions read more here

Course Outline

A Review of the LNG Industry
Overview of global natural gas and LNG industry

  • What is LNG?
  • Overview of the global natural gas and coal seam gas industry and reserves
  • Natural gas duration to depletion
  • Australian LNG projects – NW Shelf and the Surat and Bowen Basin
  • Overview of Australian LNG export markets of LNG: South Korea, Japan and China

Overview of natural gas price trends

  • Introduction to recent price trends in natural gas and LNG markets
  • Global trends in production, consumption and international trade
  • Overview of the spot price trends for Henry hub, UK’s NBP and the
  • Japanese JCC and LNG prices in China
  • The Chinese economy and the Rule of 70 and role of the BRICS countries on global natural gas prices
  • Price impact of the March 2011 Japanese earthquake and tsunami on Japanese LNG

Oil and gas price coupling

  • Oil – natural gas price coupling
  • Energy Equivalent Pricing (EQP) and natural gas spot pricing
  • Coupling “rules” for natural gas pricing
  • Activity: Recent coupling trends and its impact on the price of natural gas

Forecasting natural gas prices

  • Forecasting natural gas prices
  • Spot market prices v’s futures prices
  • The convergence theory of price
  • Forecasting the spot price of natural gas
  • Activity: Forecasting selected natural gas prices to 2017

LNG price determination

  • Determining the price of LNG and CBM for LNG
  • The role and application of the EQP
  • Simple “S” curve LNG price models
  • Developing more complex LNG price formulas

Resource ownership in Australia

  • Crown ownership of natural resources
  • Granting instruments: royalties and concessions, profit sharing

Agreements, gas sharing agreements

  • The Sakhalin 11 PSA
  • The Petroleum Resource Rent Tax (PRRT), 2012

Project evaluation tools

  • Introduction to Time Value of Money (TVM)
  • Application of TVM concepts to different natural gas examples
  • Introduction to spreadsheet modelling using excel
  • Development of excel based TVM examples

LNG Capital Budget Analysis

Capital budget tools

  • The role of cost of capital, discount rate and PSA / GSA
  • The payback period
  • NPV, IRR, & MIRRs

Background to the business model of LNG projects

  • Role of Joint Venture partnerships in LNG and examples
  • Gas hubs vs FLNG
  • What is FID?
  • Importance of SPA, and “take or pay” contracts
  • Large expense financing options
  • Accounting definition of expenses: Capex and opex

LNG project expenses: Capital and operational – Part 1

  • Detailed capex line item expenses associated with an LNG project
  • Detailed opex line item expenses associated with an LNG project

Financial modelling

  • Development of the excel based financial model using excel built in tools
    Identification of
    > capex line items
    > opex line items
    > Individual income line items
  • Insert long range natural gas forecasts into the model
  • Alter the basic assumptions underlying the model: Natural gas price, discount rate and accommodate expected inflation over the life of the project

Assess competing LNG projects

  • Assessing multiple LNG projects
  • Application of probability theory and Decision Tree Analysis
  • Examples of the application of multiple projects

Final overview of the LNG project

  • Review the financial viability of the LNG project in the light of opex, capex and discount rate and government taxes, concessions contained in the PSA
  • Review the status of the global macro-economy are members of professional associations, our courses are eligible for Continuing Professional Development (CPD)

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