Smarter LNG: More efficiently matching supply to demand with the digital twin

Shahzad Khan's picture
Shahzad Khan, System Consultant, Yokogawa Corporation of America
Comments: 0

LNG business models are changing. Unlike many vertically integrated African and Asian LNG projects, North American LNG projects have a lot more variability in their market structures and are also associated with significantly smaller upstream components.

Projects have typically been associated with rigid Sale and Purchase Agreements (SPA) of long-term (20-year) deals carrying set volumes, prices, destinations, and buyers. The situation is changing - the glut of gas availability in the U.S. and Canada has made security of supply a less important factor. Hence, North American LNG developers are adopting more innovative and agile business models to enhance flexibility and competitiveness by exploiting market arbitrage opportunities:

  1. Merchant producers. The developer owns the liquefaction facility and procures feedstock from producers at market prices. The feedstock is liquefied and sold to off-takers, with the goal of capturing a spread gain, between the input price of gas and output price of LNG.
  2. Tolling processors. The LNG plant operator does not take title of the feedstock. Instead, it processes feedstock supplied by an LNG buyer/off-taker for a negotiated tolling fee.
  3. Equity players. LNG buyers purchase equity in the project and in return receive proportional LNG volumes relative to their equity stake ownership.

The models vary widely. SPA’s deliver predictable revenue and take little market/commodity risk. With the merchant model, the developer takes market risk. There is significant incentive to optimize operating costs to the fullest extent possible. With the tolling model, there is also a major incentive to optimize operating costs.

In all cases, operators need to “manage for margin.” This means focusing on the plant’s largest controllable operating cost. For liquefaction plants, this is fuel gas consumption utilizing energy optimization. Can operators count on the plethora of emerging technologies to optimize their processes for margin?

With today’s current technologies, it is possible to answer the question, ‘What is the most profitable mode of operation for the next few hours, for the rest of today, tomorrow and beyond?’ With ‘lower for longer’ oil prices, the need for enterprise-wide optimization in the upstream and midstream oil and gas industry is greater than ever.

The terms ‘Digital Oil Field’, ‘Digital Gas Field’, ‘Digital Twin’ are being utilized to extol the virtue and value of big data analytics and model-based asset optimization and supply chain optimization by enabling this in efficient ways not previously possible with multiple unintegrated systems, processes and procedures.

Multiple different point solutions rolled out across multiple sites become difficult to integrate horizontally for management of safe and optimized operations and vertically up to business enterprise resource planning level to give useful and timely business insights. With careful planning, coupled with deep operational technology and operations knowledge, an integrated enterprise-wide supply chain and asset operations and management system can unlock significant hidden value. This is enabled by the correct and efficient integration of many systems and the efficient collection, management and use of huge amounts of data.

As the industry needs to ‘do more with less’, getting this integration right is critical to enable desired outcomes and functionality. This paper summarizes the current state-of-the-art solutions that enable optimized well to liquefied natural gas plant process, asset and business management to deliver desired functionality and outcomes.