A Probabilistic Approach for Evaluating Alternatives to Reduce Minimum Send Out Rate at LNG Regasification Terminal
Posted: 3 Feb 2011
Date Written: October 1, 2009
This paper presents a multi-scenario stochastic valuation model to select the most attractive Minimum Send Out (MSO) option for an LNG terminal. The model utilizes the Poisson and the exponential distributions to model the number of days the MSO equipment would operate conditional on the probability of securing LNG contract. These distributions feed into a cash flow model that produces an NPV distribution for a particular MSO option. Forward simulations use Crystal Ball with one million scenarios. As an input, the model takes CAPEX and OPEX data provided by the LNG terminal operator and user data including sourcing success and LNG-Gas (e.g. TTF) spread. Optional input may include preferred start up date, installation lead time and permitting. The final result is a set of NPV distributions corresponding to all MSO options which form the basis for comparison / selection of the preferred MSO alternative that has the highest risk-adjusted return. Optionality includes cargo diversion and market flexibility offered by each equipment alternative. We -at Essent Trading- have used the model in real life to make our selection and decision for a preferred MSO option to be installed at Gate LNG terminal and we expect that our choice would be implemented by the start of commercial operations in late 2011.
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