brunei lng delivering energy security

7/27/2019 Brunei Lng Delivering Energy Security

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BRUNEI LNG: DELIVERING ENERGY SECURITY

R. Moon HussainGeneral Manager Gas Extension

Mohamad Damit

General Manager Marketing & Shipping

Brunei LNG Sdn. Bhd.Lumut, Brunei Darussalam

www.blng.com.bn

ABSTRACT

Brunei LNG has successfully serviced the gas markets of Japan and Korea for more

than 35 years and has delivered well over 5,000 cargoes of liquefied natural gas. With

this impressive track record behind it, Brunei LNG is now very much looking to the

future. This paper will address the opportunities for Brunei LNG as it approaches its 40thAnniversary.

From a market perspective the requirement of consumers for energy security is

fundamental in todays turbulent energy markets. LNG has an important role as a means

of providing that security both from a diversification and a reliability perspective.

The paper will look at the asset rejuvenation activities which are necessary for a 35

years old plant to maintain the reliability and integrity well into the future. Specifically

the role of proven technology in mitigating risk as part of the customer offering will be

covered.

The paper will conclude with the strategies and approach adopted by Brunei LNG

under the banner of Delivering Our Promise which to our customers equates to

Delivering Energy Security.


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INTRODUCTION

When the first cargo of Bruneian LNG was delivered to Senboku in Japan in

December 1972 it was a landmark achievement. Now, as Brunei LNG approaches its 35th

anniversary, it is considered an elder statesman of the LNG industry. Of course, age

brings with it advantages and disadvantages, both of which I will touch on later.

Figure 1. Brunei LNG first cargo unloading at Senboku in Japan

(It is perhaps worth just noting that at almost 35 years of age we are very much the

junior relations of our cousins in the Bruneian Upstream industry who have already

celebrated their 75th Birthday!)

Thirty-five years of dedicated success as a gas exporter is no mean achievement anddoes not happen by chance. The delivery of over 5000 cargoes of LNG is the mark of a

well integrated and seamless supply chain. Such performance relies on many different

parties working together to deliver success, not least of which are our customers, our

upstream gas suppliers and our shipping partners. Our success is a reflection of the

excellent support and teamwork from them all.

For Brunei LNG, 2013 is a date which will close one chapter in the Brunei LNG story

whilst opening another. At that time our LNG sales and purchase agreements, gas supply

agreement and ship charters are all scheduled to run out. We are of course no strangers to

such an event having smoothly negotiated the last such transition in 1993. As in any

enterprise it requires careful thought and meticulous attention to detail and planning

something which we are currently engaged in.

As we embark on this process, this paper will cover 3 areas:

A perspective on the market, in the context of understanding the needs of

customers, recognising of course that over time needs may change but that the

fundamental desire for energy security is as relevant today as it ever was.

A plant that is 35 plus years old naturally needs rejuvenation and Brunei LNG

is heavily engaged in project activity to be ready for the next period after

2013. After sumarising the technical aspects, the focus will be on outlining the


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role of existing facilities using proven technology in mitigating risk as part of

the customer offering.

In the final section, Brunei LNGs Strategic theme of Deliver our Promise

will be outlined and is the common thread which links these items together

and establishes the roadmap for the way forward.

THE EVOLVING ENERGY MARKET

So what is it that LNG customers are looking for today? To answer that question one

needs to understand that LNG producers and customers do not operate in a vacuum. Any

consideration of customer needs must therefore take into account the context of those

needs.

That backdrop is the global energy market which, today, is a very challenging

environment. Oil price volatility is de facto reality and generated not only by market

fundamentals but also by speculation and sentiment. Sentiment perhaps more accurately

described as fear of shortages whether real or implied. These pressures are not just

restricted to the oil markets but equally there are similar examples from other parts of the

energy industry which create similar sentiment:

Gas price spikes in California and UK

Gas pipeline supplies being choked in the dispute between Russia and the

Ukraine,

Pan European power blackout in November 2006

Technical, economic or political issues are at the root of these incidents. They are in

addition to the threat or impact of military or terrorist activities as well as political

instability in many energy supplying regions.

It comes as no surprise therefore that the watchword for todays energy markets is

Energy Security. Not only is this an economic issue but fundamentally a political one that

underpins the sustainability of many economies. Many States are trying to regain control

of what Daniel Yergin called the Commanding Heights of the economy, disillusioned

with the belief that free markets and competition will provide the necessary supply

security. Energy security was taken for granted in the rush for deregulation. More

recently events such as the blackout and curtailment of supply have reinforced the often

forgotten truth that energy interruption is simply not acceptable in most markets.

LNGs Role in Energy Securi ty

From a consumer perspective the ability to obtain sufficient energy for its needs at a

sustainable price is fundamental to sustained economic development. Consequently any

energy source which is able to meet these requirements has a place in the energy mix. It

was precisely this thinking which led to development of the LNG industry in the first

instance by providing countries without pipeline access, the ability to secure and utilise

Gas.


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Governments today face difficult decisions having to balance economic needs with

environmental and security concerns. LNG has created a market space for itself with the

promise of clean reliable energy.

Even countries with pipeline access are now turning to LNG as an important part of

their energy policy. The value proposition for LNG is underpinned by the point-to-pointnature of LNG trade. A routing over the high seas means that supply dynamics are

bilateral rather than multilateral when compared with pipeline schemes. It is precisely this

issue that has seen LNG projects leapfrog potential pipeline developments in many areas.

The second main feature that is well understood by traditional markets for LNG is the

importance of the portfolio approach i.e. diversify your supply. This is equally if not

more applicable for the new LNG markets where often the case for new LNG terminals is

predicated on security of supply issues primarily. LNG allows supply flexibility which is

unmatched by fixed infrastructure alternatives.

It was not too long ago that the traditional markets of the East were confident thattheir stable pricing was sufficient to attract supply. This myth was exploded as focus for

both spot and long term trade shifted to the Western markets. Suppliers were clearly

attracted by the potential price upside that was possible in the volatile Atlantic basin

markets. The traditional markets have responded strongly to this threat to their supply and

have very aggressively gone after supply. So much so that the focus is once again on the

Eastern Markets.

LNG is not however a panacea for all the issues. Success in the industry has brought

its own complications. Delays to new projects are commonplace now, whether from

political intervention, scarcity of project resources or environmental concerns. Price

inflation in the oil and gas construction industry driven by demand as well as oil price issignificantly impacting LNG project delivery.

Its perhaps also worth noting that security of supply has a flip side, namely the

perspective from suppliers. For many countries where oil and gas revenue generate a

large part of the revenue for social and economic development, a stable and robust

income stream is fundamental to the national interest. With that consideration, LNG can

provide flexibility in outlets for gas, which offers more potential customers than

dedicated pipeline export.

In energy supply these days, the risk vs. reward balance is firmly tilted in the

direction of risk and hence options to mitigate or manage risk have significant utility. Put

simply, energy security is a matter of reducing or mitigating risk in the energy supply

chain. Risk mitigation is as diverse as the energy value chain and can encompass many

different areas such as demand side management, distribution infrastructure etc. In many

instances energy users (the customers) are more likely to be able to influence the parts of

the chain adjacent to their own. Their concerns are therefore often focused on the supply

end of the chain where their ability to directly influence or manage is more limited. The

next section will look at supply risk mitigation as an area which can add value for

customers.


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RISK MITIGATION

Already we have seen how energy security is essentially an exercise in risk

management. From a technical standpoint it is easy to appreciate that a 35 year old plant

will require substantial work to keep it functioning. Less obvious perhaps is the benefits

that this older technology can bring. In this section we will see how plant rejuvenation incombination with tried and tested technology can be a risk mitigant and thus contribute to

supply security for customers.

The technical challenges in revamping a liquefaction facility which was designed and

built 40 years ago are themselves quite interesting but not covered in detail in this paper.

Further specific technical information can be obtained from the author.

Brunei LNG together with its technical adviser Shell Global Solutions carried out a

detailed study in 1999 as a result of which an Asset Reference Plan (ARP) was

developed. This ARP is the roadmap for the rejuvenation journey that Brunei LNG has

embarked on. The aim of this activity is to continue reliable plant operation till at least2013. Already substantial elements are complete. During the course of 2004 and 2005 4

Main Cryogenic Heat Exchangers (MCHE) were replaced. These huge structures can be

considered the heart of the liquefaction process and this was the first time MCHEs have

been changed out in an operational plant. In progress at the moment is the construction of

a new 40MW combined cycle CCGT power plant and complete revamping of our cooling

towers. Whilst these high profile new additions/replacements to the plant attract the

limelight there are over 25 other projects which range from simple hardware

replacements to new infrastructure facilities such as labs, workshops etc. The complete

scope covers the entire plant. The activities are well on track to have the plant ready for

an extended life well before the expiry of our current Long Term sales contracts in 2013.


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penalties for late start up, cost escalation and financing burden can be quite severe.

Severe enough to potentially put the viability of such projects into question.

The key to Brunei LNGs rejuvenation was to plan early and allow for phased

execution and have plenty of float in the schedule for unforeseen issues. For plant which

is operating and already generating revenues the time pressure is not an issue other thanto have the plant ready by 2013. This allows proper planning and sequencing of activities.

Technical Risk

New LNG projects have spearheaded the drive to larger and larger train sizes in the

pursuit of economies of scale. Current world scale trains in the order of 8 mtpa would

have seemed inconceivable a few years ago. There is a similar story in shipping with the

latest Qmax sized vessels pushing the boundaries of not only the ships but also the

receiving facilities. Such innovation is a sure sign of progress but as we all know progress

is rarely made without taking risk.

For a plant, which has been in operation for 35 years, the innovation is more

evolutionary rather than revolutionary. As equipment is replaced there are some marginal

increases in capacity but more importantly efficiency is improved. These small

incremental steps help to maintain Brunei LNGs competitiveness without exposing the

business to the huge challenges of prototyping.

Operational Risk

Whilst building a new LNG plant is a considerable challenge, it is only the first part

of the job. Running the plant requires different but no less important skill sets and as the

number of new plants grows rapidly there will be a shortage of skilled operators. Add onthe complexity of new processes and step changes in train size and the start up and

operational risk is significant in the early years.

In contrast, existing plants using proven technology can benefit from a stable

operation mode. In benchmarking studies carried out annually by Shell Global Solutions

the performance of 9 LNG sites (comprising 41 production trains with a total capacity of

124 million tonnes per annum) is compared. Data for 2006 has not yet been compiled but

Brunei LNGs 2006 utilisation rate of 93% (as shown in fig. 3) compares very favourably

the historical benchmarked average. In fact Brunei LNG has in 2006 only had one

unscheduled train trip during the whole year leading to a new record production level of

218 Cargoes of LNG.


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75%

80%

85%

90%

95%

100%

2002 2003 2004 2005 BLNG

2006Average of all LNG Sites Benchmarked

Utilisation

Figure 3. Comparison of Brunei LNG 2006 plant utilisation to benchmark

A sometimes overlooked benefit of the older plants is the consequences of

unscheduled outages. With its smaller train sizes a trip would result in a 20% reduction in

output from Brunei LNG. A similar incident at one of the newer plants would have a

correspondingly larger impact on production.

Supply Chain Risks

As mentioned previously Brunei LNG is one element in a complex supply chain. Our

preparation and planning is therefore pointless if the other elements in the supply chainare not following a similar path. For an existing project where the complete chain is in

operation the effort involved to achieve such alignment is very much part of routine

business. Clearly for a new supply chain which is being set up from scratch it will take

time before a similar degree of co-operation is in place. Brunei LNGs partners

understand well the importance of their own preparations and are fully committed to their

own work programme.

Already Brunei LNGs Shipping providers are looking to the future and planning and

executing changes to the fleet of LNG carriers which service Brunei LNG. Similarly

upstream gas suppliers are in the process of carrying out the necessary activities to ensure

that the required resource volumes are matured in parallel with the commercialdiscussions over the coming years. That is in parallel to their own asset rejuvenation

works which are also progressing at pace.

Its perhaps also worth noting that this supply chain operates in a location which has

an extremely stable political and social climate. Country risk in Brunei Darussalam is

negligible and is something which is very much appreciated by our customers.


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Brunei LNG STRATEGIC THEMES

The Brunei LNG strategy is complementary to these strengths and provides our

customers with the confidence that we can offer them the security of supply that they

require. Under the banner of Deliver Our Promise the strategy is centered on 3 simple

themes:

License to OperateThis covers the areas that are intrinsic to performing our business. It includes such

things as Plant Integrity, Safety. Getting the basics right and maintaining them

requires strict compliance and discipline. Consider Safety, where Brunei LNG has

at the end of 2006 recorded 12 million manhours without lost time injury. Such

performance is the result of continuous focus and attention to detail. One of the

concerns we have is that such continued good performance could lead to

complacency. Hence we have recently introduced new initiatives focused on

behavioural safety as a means of further embedding this performance as a matter

of routine in our business.

Optimise the businessOnce the basics are under control, the next priority is to optimise the business,

both in terms of facilities and people. Developing people to enhance their

competence underpins improved business performance. Empowering people

enables Brunei LNG to get the most out of the physical assets. An example is a

recent initiative to step up the training of our operations staff in partnership with

the Institute of Technology Brunei. As Brunei LNG approaches 40 years in

operation, many of our staff have retired or are close to retirement. In this crew

change to the next generation we have revamped our efforts to transfer the skills

and capabilities to the next cadre of operators.

Get ready for the futureAs already discussed in some detail, detailed early planning is key to the

sustainability of Brunei LNGs business beyond 2013. Plant rejuvenation is

progressing at pace. At the same time we are working with our upstream gas

suppliers towards securing the necessary gas supplies for continued operation.

Equally important is the work currently ongoing with our shipping providers to

identify and configure our future shipping requirements after 2013. In parallel

with these activities the commercial options beyond 2013 are currently being

studied.


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brunei lng delivering energy security

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