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The liquefied natural gas (LNG) business comprises a number of economic activities with inherent risks. The purpose of this paper is to propose an integrated modelling…
The liquefied natural gas (LNG) business comprises a number of economic activities with inherent risks. The purpose of this paper is to propose an integrated modelling approach, as part of the investment decision‐making process, for optimising economic returns from LNG whilst taking into account uncertainty in various key input parameters.
Inter‐linked cash flow and pricing models of the LNG chain were constructed. Net present value was maximised based on selection of netback pricing variables and level of investment shareholding. Constraints were placed on the minimum acceptable returns. The risk affinity of the decision maker was captured in the form of a chance‐constrained optimisation problem. A genetic algorithm was applied for numerical optimisation, in combination with Monte Carlo simulations to account for the stochastic nature of the problem.
Based on the results of a case study, the deterministic solution, having no consideration to uncertainty, was found to be both sub‐optimal and provided an unsatisfactory risk outcome. The stochastic approach yielded an optimal solution with due consideration to risk. Various scenarios show that the choice of the decision variables significantly impacts the trade‐off between risk and returns along the LNG chain to government and investor.
The suitability of the methodology to the operational phase of the LNG business which incorporates different elements of risk, such as market dynamics and logistics, is as yet untested.
This framework may be useful in the formulation of optimal commercial structure of firms, investment portfolio and gas/LNG pricing arrangements for host governments involved in the LNG business.
With over 100 years of commercial activity, Trinidad and Tobago's energy sector has demonstrated significant growth and dynamism. This paper aims to provide a historical…
With over 100 years of commercial activity, Trinidad and Tobago's energy sector has demonstrated significant growth and dynamism. This paper aims to provide a historical account of gas sector developments and seeks to decipher the motivating factors and key policy positions of the government.
A review of policy framing documents in the gas sector is conducted. These are juxtaposed with historical information on hydrocarbon production, level of foreign direct investment and State participation. The impact on the country's economy in terms of energy revenues and gross domestic product (GDP) is also examined.
Over the period 1962‐2007, daily average hydrocarbon production increased eightfold to 800,000 barrels of oil equivalent due mostly to natural gas. Total energy revenues and GDP have grown significantly. Contributing factors include an evolving fiscal regime to attract foreign investment, strategic State investments, joint venture arrangements, monopoly gas transmission and merchant roles and an effective institutional framework. Government stewardship, market forces and private sector investment moulded the sector. Recent measures include revisions to the fiscal regime and sector diversification aimed at sustaining the industry.
Energy sector developments of this small island economy have largely escaped the purview of the mainstream academic literature. Trinidad and Tobago's energy policy has not been well articulated or documented, and this paper serves to act as a springboard for further studies which may provide policy direction for other countries.