David Steven Jacoby

Bahrain’s LNG Terminal Project: How an Independent Master Supply Chain Plan May Have Saved 29 Months and $138 million

b2ap3_thumbnail_Fast-Track-to-Funding-shutterstock_164841665Bahrain’s National Oil and Gas Authority (NOGA)’s LNG import terminal project seems to be on path for a 7-yearcycle: NOGA initiated partnering steps in 2010, and is forecasting completion for 2017.

  • During a ‘prequalification’ round, NOGA came up with an initial short list of potential EPC firms, then it enlarged the bid list to include a maximum number of responses (21). The bid turned out to be premature, but it did result in two ongoing ‘discussion partners’ (Shell and Vitol).
  • NOGA took several years to iron out governance issues. It had originally considered a joint venture with Independent Terminal Bahrain (ITB), Kuwait’s Independent Petroleum Group (IPG), and Arab Petroleum Investments Corporation (APICORP). In the end, NOGA chose a consultant and engineers to do a pre-FEED and a FEED study. It also decided on issues of ownership between NOGAholding, NOGA, and BAPCO, which it engaged as a technical advisor.
  • It set priorities and interrelationships between related projects, assessing its domestic energy needs (e.g., ALBA), evaluating alternative energy sources and configurations (FLNG, solar, etc.), negotiating the terms of pipelined oil from Saudi Arabia, and tweaking the project’s timing to synchronize anticipated supply and demand.

The introduction and integration of a supply chain ‘master plan’ at the Feasibility Study/Basis of Design stage can shrink the project cycle, improve reliability of the timetable, decrease cost, and synchronize procurement commitments with forecast cash positions, all while meeting target levels of total cost and per-unit cost. A supply chain master plan for an LNG project has three components:

  • Assessment of the cost saving potential of alternative major equipment technologies and choices, such as gas turbines, GT drives, and heat exchanger designs, which on average saves 10-25% on these major items.
  • Determination of the minimal achievable project timeline within inter-related and complex supply chain lead time constraints, especially for major equipment such as compressors. This avoids subsequent project delays and cost overruns. As a proxy, Boston Strategies International sampled 20 major refinery projects between 2005 and 2014 found that 20% of them encountered delays that inflated their schedules by an average of 35% and their cost by an average of 23%. Equivalent factors applied to the roughly $600 million, 7-year terminal project in Bahrain would yield a potential avoidance of 29 months and $138 million.
  • Calibration of the timing of financial and legal/contractual commitment to long lead time equipment, which avoids cash crunches.

Supply chain master plans should be conducted by independent third parties other than the firm that may do or manage the construction. This ensures objectivity of the costs and lead times, which an EPC often has an incentive to misrepresent in order to increase its chances of winning the construction work. By providing a range of cost benchmarks for similar projects, it also dramatically improves the owner/operator’s negotiating position in the bid evaluation phase.

Boston Strategies International developed a supply chain master plan for a major European power producer that helped to save 13% on the baseline cost of a $45 billion project ($5.8 billion).

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