Security of Supply - Value Chain Optimisation

Value chains can be complex, as for example with gas supply networks that have developed over time, with network capacity constraints arising from previous optimisations that have become outdated because the original design assumptions no longer apply. Complex supply networks are common in countries that had developed their oil and gas industries over a long time horizon, adding incremental production facilities as additional reserves had been proven and developed, taking advantage of growing market opportunities.

Traditional capacity planning methods assess the security of supply by making conservative planning assumptions, with calculations that are based on worst case scenarios or with limited production targets. This simple and straightforward approach gives a clear view on the requirements to meet existing and future contractual commitments, but leads to overly conservative capacity margins and relatively poor utilization of expensive production facilities.

These network questions can arise in long term planning, for example with growing demand, the future depletion of old reserves and the development of new fields. For answering them, a steady state approach that assumes full capacity from all reserves would not address the scenarios where one or more production facilities are temporarily down. Depending on the nature of the supply commitments and the degree of cooperation by the network producers, there may be room for optimising the network configuration and the network capacities, including the suppliers' capacity margin.

In practice, the capacity margins result from a negotiation process between the suppliers and the buyers but sometimes they are based on general convention and imposed by the national authorities. These margins range widely from as low as (an aspired) 5% to as high as (a real and persistent) 20%. This suggests that the room for improvement is huge. However, some of the challenges lie with the technical complexity and stochastic nature of these network optimisation studies and the difficulty to reach agreement on the modelling assumptions with all stakeholders.

Track record selection

Company Sector Project Location, year
Nigeria LNG and several gas producing JVs Gas NLNG gas supply network optimisation Nigeria, 2004-2007
Malaysia LNG and SSB Gas MLNG gas supply network optimisation Malaysia, 2004-2007

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