Quantifying host nation benefit from LNG developments

Abstract

Liquefied natural gas (LNG) project developers invest heavily in evaluating project execution alternatives before deciding to proceed with a development. However, while the technical and economic basis for selecting, for example, a floating (F)LNG concept over an onshore development may be clear for a developer, the host nation which owns the hydrocarbon resources will view the project from a different perspective.

The developer’s project metrics focus on net present value (NPV), return on capital, safety and environmental performance, but the host government’s performance in managing the country’s natural resources is determined by metrics such as tax revenue, employment, industrial development and gross domestic product (GDP) growth. There are areas of clear alignment between the developer and host nation: the more profitable a project is for the developer, the greater the tax revenue from that project. However there are also areas of misalignment and conflict. The issue is brought sharply into focus by cases where FLNG can reduce development costs by replacing an onshore LNG plant with a floating vessel that is often constructed overseas. The host nation must balance the higher tax revenues from the lower cost project against the reduction in local development and employment that would have been stimulated by construction and operation of an onshore LNG plant.

This paper presents a quantitative approach to the assessment of host nation benefit to the national GDP from a natural resource development project. A transparent basis on which to compare the national GDP benefit accruing from competing development concepts, based on internationally recognised metrics and methods, is presented. The technique is applied to a representative comparison of FLNG and onshore LNG development concepts to illustrate the conclusions that can be drawn from its application.