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Strategic and flexible LNG production under uncertain future demand and natural gas prices

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Version 2 2023-09-26, 12:41
Version 1 2023-05-21, 12:32
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revised on 2023-09-26, 12:37 and posted on 2023-09-26, 12:41 authored by Noor Yusuf, Rajesh Govindan, Luluwah Al-Fagih, Tareq Al-Ansari

The expectation in global demand for liquified natural gas (LNG) remains bullish in the coming years. Despite the unprecedented impact of the COVID-19 pandemic, and the oil price wars between OPEC and Russia in 2020, causing oversupply and falling prices, the LNG markets continue to demonstrate flexibility and resilience in delivering the needs of different sectors, whilst helping achieve the emissions targets. This is attributed to the high competitiveness amongst LNG producers and suppliers, providing greater confidence for medium-to-long term demand. However, the uncertainties in the current outlook for the return of demand and price growth in the post-COVID period pose difficulty for new liquefaction project investment decisions in the pre-Investment Decision Phase (pre-FID). Accordingly, the consideration of new production and selling strategies is needed in the early design stages of projects to cope with the shift in buyers' sentiments favouring increased reliance on spot and short-term uncontracted volumes, as well as incorporating additional flexibility into long-term contracts. In this study, the economic valuation of the flexible Air Product's AP-X liquefaction technology was investigated considering the modelling of price volatilities, using the mean-reverting jump-diffusion pricing model and Monte Carlo simulation, assuming different demand level scenarios in the high-income Asia Pacific markets based on historical trends. The results clearly demonstrate that embedding flexibility within an LNG production system allows producers and suppliers to diversify selling strategies and take advantage of the lucrative market conditions when demand and prices increase, and hedge against market risks when demand and prices are low.

Other Information

Published in: Heliyon
License: http://creativecommons.org/licenses/by/4.0/
See article on publisher's website:http://dx.doi.org/10.1016/j.heliyon.2023.e16358

Funding

Open Access funding provided by the Qatar National Library.

History

Language

  • English

Publisher

Cell Press

Publication Year

  • 2023

License statement

This Item is licensed under the Creative Commons Attribution 4.0 International License

Institution affiliated with

  • Hamad Bin Khalifa University
  • College of Science and Engineering - HBKU

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