As LNG trade beomes more flexible, there has been a growth in the use of simulation models to optimise the design and operation of LNG reception terminals and the ships that supply them. Lanner give examples of these relevant applications of simulation modelling and its practical benefits.
 

In recent months, Lanner has been approached by many LNG companies to apply its simulation technology and expertise to their businesses. In all cases the objectives were:

• to provide a much better understanding of complex logistics processes
• to ensure that business cases are fully validated prior to being sanctioned, and
• to mitigate the risk associated with processes where it is virtually impossible to manually assimilate complex interactions of multi-dimensional causes and effects.

Simulation models provide the ideal opportunity to understand systems at both a local and holistic level. Much of the recent simulation work performed has been centred on receiving terminals. Given that this is currently a 'hot topic' in the LNG industry, this article describes how simulation can add millions of dollars of value to those companies involved in supplying and operating receiving terminals. All the applications discussed are based on real projects; however, for reasons of confidentiality all specific data and proprietary information are deliberately omitted.

Lanner's WITNESS simulation product is a strategic decision support tool, used for modelling scenarios where other techniques such as spreadsheets become inappropriate, as they fail to incorporate the time dependent and random factors that form the basis of most modelling situations. Furthermore the high-resolution graphical display allows the study of many aspects during the running of the model which would be difficult to realise using the numeric output alone. WITNESS highlights, through a pictorial representation of the facility being modelled over simulated time, the effects of proposed changes to a scenario before a company commits to a final decision. The graphical display is backed up with statistical reports, many of which would be impossible to generate using any other technique. A WITNESS simulation model allows understanding of how the demands and conflicts of an operation, which will vary over a time period, affect such parameters as throughput, work in progress, bottlenecks and delays or resource utilisation. Further sophistication such as failure data, resource availability, shift patterns and planned maintenance can be incorporated into a model allowing the user to experiment with various 'what-if' questions. Once built, a WITNESS model is checked and validated by personnel familiar with the process observing the model in action and asking questions such as:

• What is expected to happen next?
• Why are the tank contents building up?
• What would happen if an input variable is increased or decreased?
• What are the impacts of breakdowns?

It is also possible to interact with the model and force conditions to occur in order to perform validation under specific circumstances.

Organisations who have used WITNESS to analyse Terminal Operations applications include Qatar Petroleum, Shell, BP, Sofregaz, Woodside Energy, RasGas, ExxonMobil, and Fluxys LNG.

Receiving Terminals

Recently, Lanner Group has seen a great deal of interest from companies interested in the simulation modelling of receiving terminals. Recent applications include:

n Examining the number and size of individual equipment items. For example, the number and size of ships (obviously not all ships in a fleet have the same characteristics), the storage configuration and the detailed equipment for regasification and send out. This includes low pressure pumps, high pressure pumps and combined heating and power units.

n More detailed studies have examined the equipment configuration at a much more exhaustive level. This includes the sparing of low and high pressure pumps, individual equipment items in the boil-off gas handling system, the detailed makeup of power generation and utility systems and the supply of fluid to heat or cool specific components. The goal behind these studies is to ensure deliverability targets are met and to certify security of supply.

n Sales and Purchase Agreements in place with suppliers need to be matched carefully with Gas Sales Contracts for consumers on an annual basis. Analyses need to be performed on the impact of variations from these contracts. When multiple suppliers or multiple consumers are involved, the aggregate quantity under contract needs to be analysed to ensure that storage is correctly sized so that ships are not delayed by having too much inventory in the terminal at the time of arrival, and stock outs do not occur where all inventory has been vaporised before the next ship arrival. Models have been developed to generate ADPs (Annual Delivery Programmes) based on target stock levels and predicted take quantities. These take quantities are usually variations of forecasts; the forecasts are variations of calendarised annual quantities. The purpose of such studies is to determine the risk of stock outs and establish the operating rules that fulfil the projected requirements.

n Whilst more than one supplier may be delivering into a receiving terminal, and they are effectively rivals, there are often synergistic opportunities for cooperation. For example, should a supplier's ship arrive late at a receiving terminal and that supplier's inventory has all been sent out, then short term pooling of inventory may provide an opportunity to continue sending out by borrowing another supplier's LNG. This is then 'repaid' when the cargo is discharged. In a similar fashion, if each supplier has agreed storage rights, it may be possible to borrow ullage from each other to maintain schedules. Clearly all parties need to work together to determine how a genuine win-win situation can be realised and modelling provides a detailed and unbiased insight into how this can be best achieved.

n Receiving terminals have individual working practices for the allocation of rights. These rights may be related to individual cargoes or perpetual entitlements. Both suppliers and terminal operators may have the need to fully evaluate the working practices to understand how commercial opportunities are best exploited. Given the complexity of such systems, it is very difficult to calculate the impacts of working practices; moreover, it is close to impossible to manually discover how best to exploit such systems without a detailed and accurate simulation model.

The benefits derived from each of these examples is expanded upon below.

Example 1: Additional Deliveries

Benefit: $15m in additional annual revenues

Application Area: Annual Delivery Programmes & Spot Cargoes

How Simulation helped: Provided the ability to assess real risks and dramatically increase confidence

One of Lanner's clients had an opportunity to produce more LNG than it previously sold. The issue preventing the organisation marketing the extra LNG was the perceived risk to existing contracted cargo deliveries. As the portfolio of assets is constantly being squeezed there is subsequently less opportunity to compensate for unplanned events in such a lean process. Unplanned events can include delays caused by weather or production outages due to equipment failure. Whilst the marketing department of the company was extremely keen to exploit the opportunities for incremental sales, there was strong resistance by the planning department who were afraid that overly aggressive scheduling could result in an unacceptable lateness profile.

Lanner was approached to help clarify the level of risk and identify the most appropriate route forward through the simulation modelling of the LNG supply chain - from liquefaction to delivery. The model supported the ability to insert spot cargoes amongst existing contracted

commitments so that a series of what-ifs could be performed to assess the feasibility of such additional spot cargoes. Following a detailed validation of the model's logic and behaviour, experimentation commenced. It transpired that the introduction of one additional spot cargo posed negligible risk to existing commitments. On the other hand, if a second spot cargo was inserted into the ADP then one weather event or breakdown would have serious repercussions for successive cargos due to the lack of contingency to catch up when unforeseen events occurred.

The model was therefore used to justify the case for the additional spot cargo and allowed the marketing and planning departments to arrive at a consensus based on a rigorous and proven methodology. $15 mill. of additional annual revenue was then realised and the simulation model has become a key tool for planning and marketing.

Example 2: Reduced Cost of Storage

Benefit: $60m capital avoidance

Application area: Storage at receiving terminals

How Simulation helped: Provided the ability to validate the risk of stocking out when different storage configurations and shipping configurations are used

Lanner has been involved in evaluating the configurations of many receiving terminals. One of these projects involved determining the number of storage tanks that would be needed in order to balance the risk of stock-outs and the capital costs of a new facility.

A detailed model was built of the salient aspects of the LNG supply chain. The scope covered a simple loading process, shipping and the receiving terminal. The latter was modelled in detail including port restrictions, storage configuration, vaporisation and delivery into the pipelines. The model included the options for contract variations and included the process for nominations and the fact that the volume of gas demanded may vary both seasonally and from forecast quantities. Target inventory levels drove the replenishment programme resulting in an ADP being generated.

The project looked in detail at the number and size of individual ships and the number and size of storage tanks. It transpired that through the occasional use of an additional small ship a $60 mill. investment in one storage tank could be avoided and the risk of stock-outs was mitigated.

The inter-relationship between shipping assets and storage configurations is frequently not fully appreciated by companies setting up new receiving terminals. There are clear opportunities for capital avoidance or capital deferment. For example, if the commissioning of storage can be phased, there is a real opportunity to increase the internal rate of return and net present value of a facility. This is achieved by avoiding the premature introduction of redundant capacity.

Example 3: Receiving Port Infrastructure Configuration

Benefit: Major capital avoidance (tens of millions of dollars)

Application Area: Port Infrastructure

How Simulation helped: Provided the ability to validate the risk of not being able to unload a ship at a port if there were no breakwaters to provide shelter from high waves

Another recent project involved evaluating the technical feasibility of constructing a receiving port without breakwaters. If successful the prize was major capital cost avoidance, but the risk associated with bad weather impacting berthing needed to be fully investigated. This was particularly important due to the potential for knock-on effects with existing customer commitments. Likewise, the potential for third parties interfering with the trade also needed to be fully evaluated.

The scope of the model included the full LNG supply chain with multiple customers and multiple suppliers to the receiving terminal (see Figure 1). A detailed model of the facility was constructed to evaluate the various impacting variables. Once built, a series of scenarios were rigorously tested to fully evaluate the level of robustness of the port design.

The model proved that the new facility was technically feasible and the perceived risk from bad weather was acceptable with little potential for adverse knock-on effects, saving many millions of dollars and securing widespread buy in to the new design. The anticipated bad weather patterns were derived from observations at a weather monitoring station close to the proposed facility site.

Example 4: Receiving Port Capacity Validation

Benefit: Substantiation of terminal capacity

Application Area: New business with interested parties

How Simulation helped: Provided proof of a receiving terminal's capacity to interested parties to increase confidence

One of Lanner's clients has an established framework for rights to storage, send-out and pipeline capacity. The receiving terminal has a planned expansion that will increase the capacity of the facility. A number of LNG suppliers had expressed interest in supplying the terminal.

The key issue was that several stakeholders needed to be 100% sure that the capacity of the terminal would be sufficient for the forecast loadings. The relationship between terminal capacity and how this would be affected by existing frameworks for the allocation of rights to storage, send-out and pipeline capacity therefore needed to be fully understood before proceeding (see Figure 2).

Lanner were approached to develop a fully data driven model of the supply chain with the terminal working practices modelled in detail. The model was run a number of times under different configurations to provide an extremely accurate impact assessment for all stakeholders involved. The end result was that the model demonstrated unambiguously and very visually that the impacts were indeed manageable and that the terminal could provide sufficient capacity in its new proposed operating context.

This example demonstrates how from both a quantification and a visualisation viewpoint, simulation can help secure understanding and eventual buy in to forward plans.

Example 5: Optimising Shipping & Storage Resources

Benefit: Increased capacity; reduced capital costs

Application area: New facilities or expansion of existing facilities

How Simulation helped: Determined the best combination of storage and shipping resources (i.e. the number and size of individual tanks in conjunction with the size and number of individual ships).

Several previous projects overlap with the aforementioned examples. Clients frequently need to establish the asset portfolio which enables them to maximise delivery potential for minimum capital cost. Moreover, where costs are involved, there is a need to consider 'time' as one of the variables. This is often not fully considered due to the complexities of time-based modelling of a complex logistics context. By deferring the introduction of equipment until the last possible moment the 'Internal Rate of Return' (IRR) and 'net present value' (NPV) can be modelled using a simulation-based approach and therefore maximised. Many companies frequently overlook that 'commission sequencing' is an opportunity to avoid unnecessary cost through the elimination of the premature introduction of redundant capacity.

In an LNG trade, there is a need to establish the optimum portfolio of ships and storage tanks. This is equally applicable to regasification plants and liquefaction plants. The interactions between available storage and loading/unloading events are very tightly coupled. Because of this linkage it is frequently the case that planned actions which are expected to make a positive impact can have a counterintuitive outcome. It may sound strange to some to hear that the expansion of a liquefaction plant, or a regasification plant, does not always necessitate additional storage. The requirements for storage are highly influenced by the frequency and profile of ship arrivals. Fewer, larger ships have both capital and operational cost savings; however, this must be balanced with storage requirements. When a receiving terminal is supplied by multiple suppliers, each with their own shipping resources, which can differ within their fleet, the magnitude of complexity dramatically increases. The same issue is present at liquefaction terminals serving multiple customers. Determining the requirement for storage is not confined to the configuration of the fleets serving a trade, it is also a function of the ADPs, seasonality and production/demand rates. Stochastic events must also be taken into consideration which can severely undermine 'common sense assumptions'.

Simulation is therefore ideally suited to taking a 'big picture' view of the complexities of the inter-relationships involved and hence determine optimum storage and ship sizes. This is illustrated in the next section entitled 'Simulation in Action'.

Simulation in Action

Within a simulation model, it is possible to incorporate all factors that could have an impact on any part of the entire value chain, from gas in the ground to gas delivered to the end user. In practice, individual models will focus on individual areas in great detail, with sufficient interaction with other areas to ensure they are not entirely benign. The example shown in Figure 3 is a model focussed on the shipping portion of the chain, with minimal detail included for the liquefaction and receiving terminals. Detail in these other areas can be added as it becomes known, to build up a suite of simulation solutions.

In this example, it is possible to configure a fleet of ships, in terms of the size of the fleet and the capacity and speed of the ships. It is also possible to allow weather to influence the journey between the terminals. By selecting various configurations of these values, the anticipated performance can be measured, as Key Performance Indicators track lost production and efficiency. Within a few seconds, it is possible to simulate the performance of a given configuration to establish the best combination.

Conclusion

Today's leading LNG companies have a need to continually seek competitive advantage through innovative techniques. Simulation modelling is regarded as 'best practice' by such organisations.

In some cases, the commercial viability of an entire multi-billion dollar facility has lain in the balance, with simulation modelling being the only available means of validating the business case to the mutual satisfaction of all stakeholders. It has provided LNG companies with the ability to differentiate themselves from other players in the marketplace.

Acknowledgement

This article is based on Lanner Group's paper entitled 'Optimising LNG Receiving Terminals Using Simulation Modelling' which was produced for the CWC Group's 4th Annual LNG Summit in Rome 2003. This in turn was published as an addendum to Lanner Group's paper entitled 'Maximising LNG Supply Chain Efficiency with Simulation Modelling' which was produced for CWC's 3rd Annual LNG Summit in Rome 2002.

Andy Chandler is Lanner's Head of Downstream Solutions. Andy has spent the last 11 years working with simulation at Lanner. He has specialized in Oil & Gas over the last three years with WitnessTM, Lanner's simulation tool. Andy is a Mathematics graduate from the University of Bristol in the UK, and is in the final year of a part-time MBA at Birmingham University.

Lanner is a fast growing global company specialising in the provision of Business Performance Improvement software and services to clients across the world, and is the world's leading provider of simulation modelling software and services.

For further information contact : Andy Chandler Tel: +44 1527 551323 Fax: +44 1527 404452 Email: achandler@lanner.co.uk Web: www.lanner.com