This model captures the economics of a typical LNG liquefaction project. In our base case, a greenfield LNG project costing $900/Tpa in capex must charge a $4/mcf liquefaction spread for a 10% IRR. $3.5/mcf input gas prices thus result in $7.5/mcf LNG on the water. Numbers can be stress-tested in the file.
This model captures the costs of LNG liquefaction, building up from first principles. Specifically, we calculate the price of getting LNG onto the water (on an FOB basis), but excluding subsequent LNG shipping costs and LNG regasification costs, which vary by destination.
Input gas prices are the single most determinant of LNG economics, and comprise 50% of the cost of getting LNG onto the water, at a typical US facility, which is bringing in pure and dry gas, downstream of a fractionation plant, at $3.5/mcf. Global gas prices are here.
LNG capex costs are the next most important variables. Capex and capital costs comprise 30% of the economic costs of getting LNG onto the water. Hence, we have compiled a breakdown of LNG costs on a component-by-component basis (first chart below), informed by our review of the LNG supply chain. And we have also tabulated the capex costs of past projects, on a top-down basis, in $/Tpa (second chart below).
Cash costs of operating an LNG plant are typically around $1/mcf, across O&M, labor and energy costs. Our numbers are informed by a deep-dive on LNG chilling energy and process technologies. Labor costs are tabulated based on the employee counts of past LNG projects (chart below). Opex costs are higher at smaller LNG plants.
Well-delivered LNG projects will naturally try to minimize capex, over-runs and energy consumption. But economics are more forgiving than for other types of projects we have modeled, based on the sensitivity analysis below. Especially as the volatility distributions of LNG prices are skewed to the upside, which means mean prices will tend to exceed median prices.
All of our research into LNG in the energy transition is summarized here, and all of our broader research into natural gas in the energy transition is summarized here.