Improving the Lifecycle Performance of Engineering Projects with Flexible Strategies: A Study About On-Shore LNG Production Design

This paper presents a flexibility analysis as a practical procedure to evaluate large-scale capital-intensive projects considering market uncertainty. It considers the combined effects of the time value of money, economies of scale, and learning, and demonstrates the additional benefits stemming from considerations of uncertainty and flexibility in the early stages of design and project evaluation. This study focuses on the longterm deployment of liquefied natural gas (LNG) technology in the Australian market to supply the transportation sectors. Two design alternatives are considered: 1) fixed design, a big centralized production facility; 2) flexible modular designs, either using phasing approach at the big plant site or the same flexible approach with an option to move modular plants at distance. To compare the design alternatives, a structured flexibility methodology is applied based on several economic lifecycle performance indicators (e.g. Net Present Value, Initial CAPEX, etc.). Results indicate that a flexible modular deployment strategy improves the economic performance as compared to optimum fixed designs. They also indicate that factoring flexibility to locate modules at a distance further improves system performance. Considering α = 0.95 as the magnitude of the economies of scale, the flexible modular design and the flexible modular design with move strategy improve the expected net present value by 33% and 36% respectively as compared to the optimum fixed design. Moreover, this improvement enhances as learning rate increases. Overall, the study shows that flexibility in engineering design of LNG plants has multiple, supporting advantages due to uncertainty, location and learning.