LNG Portfolio Valuation:
The whole does not equal the sum of the parts In this article we set out a staged approach to developing an LNG portfolio valuation capability based on our own experience analysing LNG portfolio value. This capability is primarily aimed at informing LNG investment and origination decisions rather than shorter term trading and optimisation decisions. To illustrate the application of the capability we present a case study focused on a European gas portfolio adding a supply contract with a US exporter.
By David Stokes & Olly Spinks
WITH GLOBAL LIQUEFACTION capacity set to double over the next decade and Europe and Asia becoming increasingly import dependent, LNG portfolio growth is a key focus area for many energy companies. However the LNG supply chain is characterised by complex physical and contractual flexibility. This makes analysing LNG portfolio value a challenging task. The interdependent nature of LNG flexibility
portfolio means that an
investment decision in a single asset or contract usually can not be made without analysing its impact on portfolio value. When it comes to LNG portfolio value, the ‘whole’ does not equal the ‘sum of the parts’. So an effective portfolio valuation capability forms a key foundation of value creation from investment in LNG assets and contracts.
A Staged Approach In developing an effective LNG
portfolio valuation capability it is critical to maintain a focus on simplicity, adaptability and transparency. The
Figure 1: Staged Approach to LNG Portfolio Valuation Capability 1. Source to Destination Analysis
• Identify Exposures • Calculate Value of Destination Flexibility
• Define Portfolio Intrinsic Value Maximise: sum (source/destination cargo* value)
2. Simple Portfolio Model
Subject to: production = supply, shipping fleet capacity & source to destination limits etc.
• Explore Interaction b/w Contracts & Assets 3. Full Stochastic Portfolio Model Source: Timera Energy
• Identify Portfolio Extrinsic Value • Simulate Hedging & Optimisation Strategies • Capture Commodity Price & FX Uncertainty • Identify Profitable Diversions (e.g. rolling intrinsic)
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