PT DONGGI SENORO LIQUEFIED NATURAL GAS

PLANT CONSTRUCTION PROJECT FEASIBILITY

ANALYSIS

FINAL REPORT

By

Satria Rezky Pratama

19007093

Undergraduate Program

School of Business and Management

Institut Teknologi Bandung

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VALIDATION PAGE

PT DONGGI SENORO LIQUEFIED NATURAL GAS

PLANT CONSTRUCTION PROJECT FEASIBILITY

ANALYSIS

By

Satria Rezky Pratama

19007093

A Final Project in Partial Fulfillment

of the Requirement for the Degree of Bachelor of Management

Undergraduate Program of Management Study

School of Business and Management

Bandung Institute of Technology

September 1st, 2010

Validated by

Deddy Priatmodjo Koesrindartoto, Ph. D

NIP: 132327713

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ABSTRACT

Liquefied Natural Gas is a complementary item for crude oil which had been used for decades

worldwide. It has its own place in the world of energy, beside coal or even nuclear power. It is

very famous because of its cleanliness and of course because it is renewable. Liquefied Natural

Gas has its own loyal customers, such as the Japanese, which had been using the Liquefied

Natural Gas for decades to support its country electricity activity. In Japan, the cost for

electricity is relatively high; because the electricity company in Japan dares to pay every single

damaged done if the electricity supply for the country is cut off, from the rotten food in the

refrigerator, until any other electronic appliances in the house, offices or building which was

damaged. That is why the Japanese dares to buy Liquefied Natural Gas from Indonesia with a

relatively high price too, just to make sure that the Liquefied Natural Gas will never cut off too.

On the other hand, Indonesia had become the supplier of Liquefied Natural Gas for decades. Of

course, the Japanese are one of several other loyal customers of Liquefied Natural Gas, besides

Korea and China. As the demand increases, Indonesians had to be able to answer this problem

too, by searching for more Natural Gas wells which than can be converted into Liquefied

Natural Gas. Two of Indonesia’s biggest Natural Gas of Bontang and Arun had started to idle

slowly. Most of their facilities had never been used again because the Natural Gas Reserves are

starting to deplete too.

Lately, a not so big Natural Gas wells had been found in Banggai Regency of Central Sulawesi

Province. Looking at this opportunity, PERTAMINA, as the sole Oil and Gas Company in

Indonesia starts to do a feasibility analysis for this project, which is called Donggi Senoro

Project. This report will discuss about this Donggi Senoro Project by looking at its economical

side. Using the Monte Carlo Methods and simple Delphi Methods to define and forecast of the

Net Present Value of this project, so the feasibility result soon can be taken. The Internal Rate of

Return and the Payback Period of this project will also be a determination which will lead to the

initiation or end of this project.

Keywords: LNG, Feasibility, Monte Carlo Methods

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ABSTRAK

Liquefied Natural Gas adalah barang komplementer untuk minyak mentah yang sudah

digunakan selama puluhan tahun di seluruh dunia. Hal ini memiliki tempat tersendiri dalam

dunia energi, di samping batubara atau bahkan tenaga nuklir. Liquefied Natural Gas sangat

terkenal karena kebersihannya dan tentu saja karena terbarukan. Liquefied Natural Gas memiliki

pelanggan sendiri yang setia, seperti Jepang, yang telah menggunakan Liquefied Gas Bumi

selama beberapa dekade untuk mendukung kegiatan negaranya listrik. Di Jepang, biaya listrik

relatif tinggi, karena perusahaan listrik di Jepang berani membayar setiap kerusakan yang terjadi

jika pasokan listrik bagi negara terputus, mulai dari makanan busuk di lemari es, sampai semua

peralatan elektronik lainnya di dalam rumah, kantor atau bangunan yang rusak. Itulah mengapa

Jepang berani untuk membeli Liquefied Natural Gas dari Indonesia dengan harga yang relatif

tinggi juga, hanya untuk memastikan bahwa Liquefied Natural Gas tidak akan pernah terputus

juga.

Di sisi lain, Indonesia telah menjadi pemasok Liquefied Gas Bumi selama beberapa dekade.

Tentu saja, Jepang adalah salah satu dari beberapa pelanggan setia lainnya Liquefied Gas Alam,

selain Korea dan Cina. Sebagai permintaan meningkat, Indonesia harus mampu menjawab

masalah ini juga, dengan mencari sumur lebih Gas Alam yang dari dapat dikonversi menjadi

Liquefied Gas Alam. Dua terbesar di Indonesia Gas Alam Bontang dan Arun mulai idle

perlahan-lahan. Sebagian besar fasilitas mereka tak pernah digunakan lagi karena Cadangan Gas

Alam mulai habis juga.

Akhir-akhir ini, sebuah sumur gas alam yang tidak begitu besar telah ditemukan di Kabupaten

Banggai, Provinsi Sulawesi Tengah. Melihat kesempatan ini, PERTAMINA, sebagai satu-

satunya Perusahaan Minyak dan Gas di Indonesia mulai melakukan analisis kelayakan untuk

proyek ini, yang disebut Proyek Donggi Senoro. Laporan ini pun akan membahas tentang

Proyek Donggi Senoro dengan melihat sisi ke- ekonomis. Menggunakan Metode Monte Carlo

dan Metode Delphi sederhana untuk menentukan dan memproyeksi Nilai Net Present Value

proyek ini, agar hasil kelayakan dapat segera diambil. Internal Rate of Return dan Payback

Period proyek ini juga akan menjadi penentuan yang akan mengarah pada inisiasi atau akhir dari

proyek ini.

Kata kunci: LNG, Kelayakan, Metode Monte Carlo

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FOREWORD

Assalammualaikum Wr. Wb.

First of all, I would like to thank Allah SWT for giving me chances to complete my

final report. For further uses, this final report is made as a partial fulfillment of the

requirement for the Degree of Bachelor of Management. I hoped that this research

might be useful for the company I discussed in this report.

For all of the assistance given to me during the completion of this report, gladly I would

like to grant special thanks to:

1. My whole family. Thanks to my dad, mom and little sister where they always

courage me to keep on writing this final report. Thanks to my grandfather, who

always become my source of inspiration and also thanks to my uncle and aunt

and my cousins and May Allah SWT always bless you all.

2. Mr. Deddy Priatmodjo Koesrindartoto as my academic counselor. Thank you for

all the knowledge, comments and patience spent during counseling me so that I

can finish my final report.

3. Mr. Gundo Susiarjo as my secondary counselor in making this final report.

Thank you for all of the ideas regarding to LNG business and all the comments

inputted in my final report.

4. Mr. Harry Karyuliarto, Head of LNG Business, PERTAMINA. Thank you for

the time and chances given to me to study at PERTAMINA LNG, to learn and to

know most things about LNG.

5. Mr. Daniel S. Purba, Head of LNG Market Development. Thank you for the

guiding me during the internship time so that I can collect as much as

information regarding to LNG Businesses.

6. Evita Nirmalasari as agreat partner who keeps me stuffed so I won’t starve.

7. Kartika Anisa W., Hendra Wahyu P., thanks for the knowledge shared to me and

assistance so that I can finish my report and Andika Wiradiputra, Nadya Deviaty

Hermawan, Reinaldo Saadi and most of my friends who had been supporting

me, courage me whenever I feel bored in making this final report.

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8. All of SBM- ITB lecturer and tutors whom ready 24 hours to stay available and

help me when I need any assistance. Thank you for the knowledge and

comments shared and given to me.

9. All of PERTAMINA LNG staffs which I cannot mention one by one. Thank you

for being my mentors during my internship time.

10. Lastly, all people and environment that indirectly supports me in making my

final report.

I know that my final report is far from perfect, so that I gladly take any comments and

suggestion to improve this final report and may this final report be useful for further

researches.

Wassalammualaikum Wr. Wb.

Writer,

Satria Rezky Pratama

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LIST OF CONTENTS

VALIDATION PAGE …………………………………………………………… iii

ABSTRACT ……………………………………………………………………. v

ABSTRAKSI …………………………………………………………………… vii

FOREWORD ……………………………………………………………………. ix

LIST OF CONTENTS ………………………………………………………….. xi

LIST OF FIGURES …………………………………………………………….. xvi

LIST OF TABLES ……………………………………………………………… xvii

LIST OF EQUATIONS ………………………………………………………… xix

LIST OF APPENDIXES ……………………………………………………….. xx

CHAPTER I: INTRODUCTION …………………………………………… 1

1.1. Introduction ………………………………………………………………. 1

1.2. Problem Identification ……………………………………………………. 2

1.3. Research Objectives …………………………………………………........ 2

1.4. Problem Limitations and Assumptions …………………………………… 2

1.5. Writing Structure …………………………………………………............. 3

CHAPTER II: LITERATURE STUDY ……………………………………. 5

2.1. Donggi Senoro Liquefied Natural Gas …………………………………… 5

2.1.1. Liquefied Natural Gas …………………………………………….. 5

2.1.2. Liquefied Natural Gas Refinery …………………………………… 6

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2.1.2.1 LNG Train ………………………………………………… 6

2.1.3. Liquefied Natural Gas Refinery Cost and Revenue Structure …….. 6

2.1.3.1. Cost Structure ……………………………………………….. 7

2.1.3.2. Revenue Structure …………………………………………… 8

2.1.4. Liquefied Natural Gas Business Characteristics ……………………… 8

2.1.5. Donggi Senoro Liquefied Natural Gas Business Schematic …………. 9

2.2. Theoretical Foundation ……………………………………………………… 11

2.2.1. Feasibility Study ……………………………………………………… 11

2.2.2. Present Value (PV) and Net Present Value (NPV) …………………… 13

2.2.2.1. Present Value (PV) ………………………………………….. 13

2.2.2.2. Net Present Value (NPV) …………………………………… 13

2.2.3. Internal Rate of Return (IRR) ………………………………………... 14

2.2.4. Payback Period (PBP) ………………………………………………... 15

2.2.5. Discounted Rate ……………………………………………………… 16

2.2.6. Forecasting …………………………………………………………… 17

2.2.6.1. Monte Carlo Methods ………………………………………. 17

2.2.6.2. Why Monte Carlo Methods? ……………………………….. 18

2.2.6.3. Delphi Methods …………………………………………….. 18

CHAPTER III: METHODOLOGY …………………………………………… 21

3.1. Research Design …………………………………………………………….. 21

3.2. Problem Identification ……………………………………………………… 21

3.3. Literature Study …………………………………………………………….. 21

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3.4. Data Collecting ……………………………………………………………… 22

3.5. Data Processing and Analyzing …………………………………………….. 22

3.5.1. Problem Solving Model …………………………………………….. 22

3.6. Conclusion and Recommendation …………………………………………. 26

CHAPTER IV: DATA COLLECTION, PROCESSING & ANALYSIS … 27

4.1. Data Collection …………………………………………………………… 27

4.1.1. Cost Data Collection ………………………………………………. 27

4.1.1.1. Construction Costs ……………………………………….. 27

4.1.1.1.1. EPC Payments …………………………………. 27

4.1.1.1.2. Other Facilities ………………………………… 29

4.1.1.1.3. Tax and VAT ………………………………….. 32

4.1.1.1.4. Financial Costs and Fees ………………………. 34

4.1.1.1.5. Borrowing for Reserved Amount ……………… 36

4.1.1.2. Operational Costs ………………………………………… 35

4.1.2. Revenue Data Collection ………………………………………….. 37

4.1.2.1. JCC (Japanese Crude Cocktail) Price …………………….. 37

4.1.3. Production Capacity ……………………………………………….. 43

4.2. Data Processing …………………………………………………………… 43

4.2.1. Costs Calculating …………………………………………………... 43

4.2.1.1. Construction Costs Calculating …………………………… 43

4.2.1.2. Operational Cost Calculating ……………………………… 48

4.2.1.2.1. Processing Fee ………………………………….. 48

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4.2.1.2.2. Shipping Fee …………………………………… 49

4.2.2. Revenue Calculating ………………………………………………… 50

4.2.2.1. JCC Price Calculating (Monte Carlo) ……………………… 50

4.2.2.2. JCC Price Revenue Calculating …………………………… 56

4.2.2.3. JCC Price Revenue PV Calculating ……………………….. 57

4.2.3. Profit Calculation …………………………………………………… 57

4.2.3.1. 2017 Profit Calculation ……………………………………. 58

4.2.3.2. 2018 Profit Calculation ……………………………………. 59

4.2.3.2. 2019 Profit Calculation ……………………………………. 60

4.2.3.3. 2020 Profit Calculation ……………………………………. 61

4.2.3.4. 2021 Profit Calculation ……………………………………. 62

4.2.3.5. 2022 Profit Calculation ……………………………………. 63

4.2.3.6. 2023 Profit Calculation ……………………………………. 64

4.2.3.7. 2024 Profit Calculation ……………………………………. 65

4.2.3.8. 2025 Profit Calculation ……………………………………. 66

4.2.3.9. 2026 Profit Calculation ……………………………………. 67

4.2.3.10. 2027 Profit Calculation …………………………………… 68

4.2.4. NPV Calculation …………………………………………………… 69

4.2.5. IRR Calculation ……………………………………………………. 71

4.2.6. PBP Calculation ……………………………………………………. 72

4.3. Data Analyzing …………………………………………………………… 73

4.3.1. NPV Analysis ……………………………………………………… 73

4.3.2. IRR Analysis ……………………………………………………….. 73

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4.3.3. PBP Analysis ………………………………………………………. 74

CHAPTER V: CONCLUSIONS AND RECOMMENDATIONS ………….. 75

5.1. Conclusion …………………………………………………………………. 75

5.2. Recommendation …………………………………………………………… 76

REFERENCES ………………………………………………………………… 77

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LIST OF FIGURES

Figure 2.1 Donggi Senoro Liquefied Natural Gas Business Schematic ………… 9

Figure 2.2 Natural Gas Processing ……………………………………………… 10

Figure 3.1 Research Design …………………………………………………….. 19

Figure 3.2 Problem Solving Model …………………………………………….. 21

Figure 4.1 LNG Historical Price Chart …………………………………………. 42

Figure 4.2.1 LNG Historical Price Δ (delta) Distribution Chart ………………… 55

Figure 4.2.2 LNG Historical Price Δ (delta) Fitted Distribution Rank ………… 56

Figure 4.3 2017 Profit Distribution ……………………………………………… 58

Figure 4.4 2018 Profit Distribution ……………………………………………… 59

Figure 4.5 2019 Profit Distribution ……………………………………………… 60

Figure 4.6 2020 Profit Distribution ……………………………………………… 61

Figure 4.7 2021 Profit Distribution ……………………………………………… 62

Figure 4.8 2022 Profit Distribution ……………………………………………… 63

Figure 4.9 2023 Profit Distribution ……………………………………………… 64

Figure 4.10 2024 Profit Distribution …………………………………………… 65

Figure 4.11 2025 Profit Distribution …………………………………………… 66

Figure 4.12 2026 Profit Distribution …………………………………………… 67

Figure 4.13 2027 Profit Distribution …………………………………………… 68

Figure 4.14 NPV Normal Distributions ………………………………………… 69

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LIST OF TABLES

Table 2.1 NPV Acceptance Area ……………………………………………… 13

Table 4.1 EPC Payments 2013- 2016………………………………………….. 28

Table 4.2 Other Facilities 2013 ………………………………………………… 29

Table 4.3 Other Facilities 2014 ………………………………………………… 30

Table 4.4 Other Facilities 2015 ………………………………………………… 30

Table 4.5 Other Facilities 2016 ………………………………………………… 31

Table 4.6 Owner’s Tax & VAT 2013- 2014…………………………………… 32

Table 4.7 Owner’s Tax & VAT 2015- 2016 …………………………………… 33

Table 4.8 Financial Costs & Fees 2013- 2014 ………………………………… 34

Table 4.9 Financial Costs & Fees 2015- 2016 ………………………………… 35

Table 4.10 Reserved Amounts 2013- 2016 ……………………………………. 36

Table 4.11 LNG Historical Price 1981- 1984 ………………………………….. 38

Table 4.12 LNG Historical Price 1985- 1988 ………………………………….. 38

Table 4.13 LNG Historical Price 1989- 1992 ………………………………….. 39

Table 4.14 LNG Historical Price 1993- 1996 ………………………………….. 39

Table 4.15 LNG Historical Price 1997- 2000 …………………………………. 40

Table 4.16 LNG Historical Price 2001- 2004 …………………………………. 40

Table 4.17 LNG Historical Price 2005- 2008 …………………………………. 41

Table 4.18 LNG Historical Price 2009 ………………………………………… 41

Table 4.19 Construction Costs 2013 …………………………………………… 43

Table 4.20 Construction Costs 2014……………………………………………. 44

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Table 4.21 Construction Costs 2016 …………………………………………… 44

Table 4.22 Construction Costs 2017 …………………………………………… 45

Table 4.23 Financing Costs 2013 ………………………………………………. 45

Table 4.24 Financing Costs 2014 ……………………………………………… 46

Table 4.25 Financing Costs 2015 ……………………………………………… 46

Table 4.26 Financing Costs 2016 ………………………………………………. 47

Table 4.27 Monthly Total Costs 2013- 2014 …………………………………… 47

Table 4.27 Monthly Total Costs 2015- 2016 (Cont'd) …………………………. 48

Table 4.28 LNG Historical Price Δ (delta) 1981- 1983………………………… 50

Table 4.29 LNG Historical Price Δ (delta) 1984- 1986 ………………………… 51

Table 4.30 LNG Historical Price Δ (delta) 1987- 1989 ………………………… 51

Table 4.31 LNG Historical Price Δ (delta) 1990- 1992 ………………………… 52

Table 4.32 LNG Historical Price Δ (delta) 1993- 1995 ………………………… 52

Table 4.33 LNG Historical Price Δ (delta) 1996- 1998 ………………………… 53

Table 4.34 LNG Historical Price Δ (delta) 1999- 2001 ………………………… 53

Table 4.35 LNG Historical Price Δ (delta) 2002- 2004 ………………………… 54

Table 4.36 LNG Historical Price Δ (delta) 2005- 2007 ………………………… 54

Table 4.37 LNG Historical Price Δ (delta) 2008- 2009 ………………………… 55

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LIST OF EQUATIONS

Eq 2.1 Costs Structure ………………………………………………………… 7

Eq 2.2 Revenue Structure ……………………………………………………… 8

Eq 2.3 Present Value …………………………………………………………… 13

Eq 2.4 Net Present Value ……………………………………………………… 14

Eq 2.5 Payback Period ………………………………………………………… 16

Eq 4.1 New Price Calculation …………………………………………………. 56

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LIST OF APPENDIXES

APPENDIX A – LNG conversion Factors