Optimising the supply chain key to success for LNG projects: KPMG

Addressing supply chain issues at the planning stage can ensure viability of new project in the liquefied natural gas (LNG) industry, which is facing massive challenges in today’s unprecedented wave of expansion, according to KPMG Global Energy Institute’s new report entitled ‘Unlocking the supply chain for LNG project success’. 

LNG developers are facing the challenges of lower oil and gas prices, and consequent reductions in capital expenditure, along with more remote and challenging projects. According to KPMG report, to ensure that new LNG projects are viable and successful, and to extract maximum value from existing projects, proponents and operators have to unlock their supply chain.

KPMG Global Energy Institute has identified the three major challenges faced in the LNG supply chains - the size and complexity of projects; the remoteness and other challenges (for instance political and environmental) of the new wave of projects; and the construction of multiple plants in contiguous locations, leading to bottlenecks and sharply-rising costs of labor and materials.

“Optimising the supply chain, both during construction and operations, is key to reducing costs and speeding time to market for LNG projects. Those companies that proactively address supply chain now will be best-placed both to deliver their existing projects successfully, and to launch new ones ahead of the competition,” said Gaurav Moda, head, Oil & Gas Practice, KPMG in India.

KPMG Global Energy Institute report provides 10 ways to address supply chain challenges: put human resources first; adapt learning from other industries; collaborate with other operators; re-think contractual relationships with suppliers; prepare for environmental, ethical and local content supply chain requirements; unlock the potential of modularisation; consider floating LNG (FLNG); understand the local environment; foresee the handover to operations; and adapt maintenance policy to location.

KPMG’s Hilda Mulock Houwer commented, “Appropriate use of these approaches can cut costs, reduce construction times, speed start-up and cut environmental impact. In a world in which the economics of new LNG ventures are seriously challenged, projects with the most competitive supply chains have the best prospects for going ahead successfully.” 

As a key locus of LNG supply and demand, Asia Pacific (ASPAC) is a geographically huge and diverse region. Moreover, the supply chain to LNG plants itself comprises many components. Nonetheless, ASPAC’s energy and natural resources (ENR) supply chain is generally considered underdeveloped and high cost .

According to Gaurav Moda, currently the main challenges faced in LNG supply chain in countries like India are remote consumer locations with no infrastructure/no access to pipelines; lack of skills in optimisation in routing and scheduling; lack of proper technical regulations to use LNG in transport (LCNG) and taxation problems with part cargo delivery to multiple destinations.

Gaurav Moda added, “Developing the local supply chain is as much a concern in India & Africa as it is in Australia and Western Canada. LNG proponents can turn this expectation to their advantage. Providing local economic opportunities helps win support from communities, governments and indigenous people. At the same time - at the cost of some up-front investment - it can deliver more robust, timely and cost-effective supply chains.”

According to KPMG, sustainable progress depends on Indian companies building on LNG-specific business capabilities. “These capabilities include greater consolidated financial strength, gas trading, increased partnering, better marketing and distribution and improved management of margins especially through optimal supply planning. They also need to enhance project management, gas contract negotiations & management and increase their understanding of customer business models,” said Gaurav Moda.