In Depth: Risk-based Approach to LNG Terminal Access

At the 2007 Offshore Technology Conference in Houston, Det Norske Veritas energy sector leader Pedram Fanailoo presented a paper, jointly written with Steven Sparling of Sutherland Asbill & Brennan LLP, on “The Need to Factor Asset Risk into LNG Terminal Agreement Negotiations.”

The paper looks at the complex issue of LNG terminal operability: that is, the ability to accommodate tightly-scheduled cargo transfers and satisfy downstream gas demand.  Fanailoo and Sparling point out that a delivery delay – whether due to weather, berthing restrictions, insufficient storage availability, or terminal downtime – will have dramatic financial impact on terminal interests and ultimately can render terminal capacity unusable.

Fanailoo and Sparling propose the use of risk-based computer forecasting to evaluate terminal operability and identify “deal breaker” issues before the purchase of terminal capacity.  Using Monte Carlo simulation techniques to quantify the variables affecting terminal operability, the authors show that modeling software can simulate alternative operating scenarios specific to each individual terminal, and can determine both a mean operability factor as well as the level of flexibility available for contingencies.

Fanailoo and Sparling suggest that understanding the risks of a particular terminal or terminal-sharing arrangement is necessary when negotiating for terminal capacity.  The use of quantitative risk-based modeling provides a sophisticated and analytical method of approaching these issues.

For further information, please contact Pedram Fanailoo or Steven Sparling.

“The Need to Factor Asset Risk into LNG Terminal Agreement Negotiations” was prepared for and presented at the 2007 Offshore Technology Conference.  Over 67,000 offshore professionals attended OTC between 30 April and 3 May, 2007; the paper referenced was presented on 1 May, 2007, by Pedram Fanailoo of Det Norske Veritas (USA) Inc.  Copyright to the paper is held by OTC.