LNG is crucial as a transition fuel, increasingly replacing more carbon-intensive options like coal and heavy oil. Consequently, LNG consumption is projected to rise. Over the next five years, 237 LNG projects are expected to commence globally, including 154 regasification and 83 liquefaction projects.
Building LNG liquefaction plants involves significant costs, and their operational lifespan typically ranges from 20 to 40 years. So, how do project owners mitigate risks and ensure profitability throughout this period?
Let’s explore three common commercial structures for LNG liquefaction.
𝟭. 𝗜𝗻𝘁𝗲𝗴𝗿𝗮𝘁𝗲𝗱 𝗦𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲
In this model, the natural gas producer owns both the upstream gas fields and the liquefaction plant. This vertical integration allows for better operational efficiency and consolidated revenues under long-term LNG sales agreements.
𝗘𝘅𝗮𝗺𝗽𝗹𝗲𝘀:
Projects like Qatar’s QatarGas and Indonesia’s Tangguh LNG follow the integrated structure.
𝟮. 𝗧𝗼𝗹𝗹𝗶𝗻𝗴 𝗦𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲
Using the tolling structure, a liquefaction plant acts like a service provider here. It processes the gas but doesn’t own it. The upstream producer retains ownership and pays a processing fee.
𝗘𝘅𝗮𝗺𝗽𝗹𝗲𝘀:
The Freeport LNG in the U.S. and Badak LNG plant in Bontang, Indonesia.
𝟯. 𝗠𝗲𝗿𝗰𝗵𝗮𝗻𝘁 𝗦𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲
In contrast to the tolling model, merchant liquefaction plants buy gas from producers and sell LNG directly. This structure allows for more flexibility and potential profit.
𝗘𝘅𝗮𝗺𝗽𝗹𝗲𝘀:
Projects like Angola LNG and Malaysia LNG use this structure.
Each model has unique advantages and risks, and the choice often depends on market conditions and investment strategies.
Acknowledgment
This article is adapted from an article posted by Faishal Rachman and is based on the study by Jin Zhang, Xiuling Yin, Zhanxiang Lei, Jianjun Wang, Zifei Fan, and Shenaoyi Liu, titled Economic Feasibility of LNG Business: An Integrated Model and Case Study Analysis (2024).
Jamin Djuang – Chief Learning Officer of LDI Training
