EY presented at the 22 World Petroleum Congress, focusing on the impact of the lower oil price on LNG megaprojects, the opportunities and challenges to adopt new practices to make megaprojects more cost effective.

1. The end of the LNG
megaproject
Chris Pateman-Jones
Director Oil & Gas | Ernst & Young LLP
Andrea Teasdale | EY Lead Analyst

2. Page 2 The End of the LNG Mega-Project
Industry forecasts — market for LNG will rebalance by early to mid-2020’s
But is the equation behind forecasts fully understood or even accurate?
Supply side certainty Demand side uncertainty
Global LNG export capacity forecast to increase by one-third
by 2021, based solely on projects currently under
construction.
Cheap coal and policy-supported renewable energy are
displacing gas in the energy mix.
As of April 2017, a little over 100mtpa of new liquefaction
capacity was under construction.
Short-term forecasts of gas demand growth are less
optimistic than those generated just a couple of years ago.
A further 400mtpa of unsanctioned liquefaction projects are at
varying stages of development, half of which is in the US.
Uncertainty around demand growth in emerging markets.

3. Page 3 The End of the LNG Mega-Project
Industry forecasts — market for LNG will rebalance by early to mid-2020’s
(continued)
But is the equation behind forecasts fully understood or even accurate?
Can the market
absorb all this extra
capacity …
If you build it, they
may not come!
Demand side uncertainty poses the question

4. Page 4 The End of the LNG Mega-Project
Demand side uncertainty and a low price environment
Immediate Implications for project investment decisions
1
2
3
A total of 128mtpa of liquefaction capacity, equivalent to eight
Gorgon-sized projects, has been delayed or cancelled since the
beginning of 2015.
Canada has 17 proposed export projects with an aggregate
output of more than 150mtpa but none have reached final
investment decision (FID) and three have been delayed
indefinitely.
In fact, an FID was taken on just one major project in 2016, the
addition of a third train at the Tangguh LNG plant in Indonesia.

5. Page 5 The End of the LNG Mega-Project
Demand side uncertainty and a low price environment (continued)
Immediate Implications for project investment decisions
Why have there been so few FIDs for new
LNG projects?
1 Convergence of regional gas prices has eroded the premium for LNG in some markets.
2 Supply surplus has strengthened the negotiating power of buyers.
3 Industry-wide examples of cost and schedule overruns on greenfield LNG projects.
4 Price downturn has increased rigor in capital allocation and reduced near-term capital expenditure budgets.
5 Energy investment directed to short-cycle projects with capital flexibility and projects outside the industry.

6. Page 6 The End of the LNG Mega-Project
Demand side uncertainty and a low price environment
Implications for future investment decisions
Future investment decisions will depend on whether the industry is able to develop
greater certainty of forecasts and critically forecasts that show clear demand growth.
Their ability to deliver this will be dependent upon:
Competing energy sources
Energy consumption cycles and new nuclear
Sustained price recovery
Project performance issues
Project cost relative to alternative investment options
the rise of renewables and storage technology.
how will energy demand growth be met?
how quickly will prices recover and for how long?
can endemic performance issues be overcome to increase delivery efficiency?
increasing competition for capital investment.

7. Page 7 The End of the LNG Mega-Project
Investor/industry
expectations
Project delivery
performance
Market pressure/oil
price volatility
Adopting forecast assumptions
When should future projects aim to achieve FID?
► If forecast consumption growth projections are adopted, based on development timelines, new projects should be
moving through FID in 2019 onward.
► So what needs to change on future projects to ensure they are approved at FID … and are able to deliver against
FID targets?
Project performance — An industry wide challenge
Productivity over past 10 years:
The Conundrum:
To be approved, projects
must reach FID with lower
costs and with greater
certainty of delivery to
target — All from the
same teams and using
similar/the same
technology.
+
+
of projects
overbudget
Average
cost
overrun
projects
overschedule
%%%
Oil and gas Industry
64 73 59
-55% +50%
Source: EY – Spotlight on oil and gas megaprojects
Source: Wages and salaries, employment and productivity, by industry, Table 09174 Statistics Norway and EY research

8. Page 8 The End of the LNG Mega-Project
How to ensure sufficient
oversight over project targets
and performance?
► How to increase transparency over
key decisions and project performance
for board, investors and partners?
► How to improve operated and
non-operated project/program
performance through effective
assurance?
► How to effectively govern project
portfolio to manage risk and select the
best projects to progress.
How to build and maintain
appropriate capability to develop
and execute projects?
► How to ensure sufficient capacity,
expertise and challenge to manage
contractors and deliver project?
► How to meet peak man-hour needs
across portfolio without unnecessary
expense?
► How to maintain consistency in
delivery of projects in a market where
the workforce is mobile and not
retained?
How to develop and execute
projects in as efficient a method
as possible?
► How to reduce project cost to meet
more stringent hurdle rates and
continue to drive cost efficiency
over time?
► How to reduce inefficiency in
interactions with key contractors and
suppliers through more effective
collaboration?
► How to drive consistency of equipment
and common units (trains, utilities etc.)
across projects?
Transforming project planning and delivery performance
Three Strategic themes
► Important to recognize that there is unlikely to be a silver-bullet solution to the industry’s problems.
► Oil and gas organizations need to look to the cumulative effect of many additive efficiency opportunities that exist in
existing processes and behaviours.
Project oversight Project capability Project efficiency

9. Page 9 The End of the LNG Mega-Project
Conclusions

10. Page 10 The End of the LNG Mega-Project
The world has changed — the LNG industry needs to respond/adapt
to survive
Demand creation
Increase understanding of potential consumers of gas and
actively engage in demand creation to create a market for
products.
Fossil fuel dominance?
Fossil fuels may be around for a while to come, but fossil
fuel growth may be a thing of the past … so does it make
sense to build projects with such long life-spans?
Accuracy of industry forecasts?
Are industry forecasts too inward focused and do they give
enough weight to advances in renewables and storage
technology … specifically in developing markets?
Does LNG make sense?
In a market where gas is abundant, does LNG
transportation make sense or should we seek to further
develop pipeline options?
Recognizing the winds of change
Don’t overlook the potential impact of renewables —
Despite the US withdrawing from Paris agreement, other
states are hardening stance on investment in green tech.
Step change in project delivery
Explore new ways of developing smaller, more flexible
projects to reduce costs and minimize the risk of project
overruns.
Three Questions for the industry to consider: Industry next steps:
1
2
3

11. Page 11 The End of the LNG Mega-Project
Visit our capital projects page for more information
ey.com/oilandgas/capitalprojects

12. Page 12 The End of the LNG Mega-Project
Chris Pateman-Jones
Director Oil & Gas
Ernst & Young LLP, UK
Author
Chris is a director within EY’s global Oil & Gas service, focusing on the development of major
capital projects. After completing his PhD, Chris started his career at Bechtel Corporation, one
of the world’s major EPC companies. Then seven years ago, after working across the UK and
Middle East with Bechtel, Chris joined EY Global, based from the UK. Chris now splits his time
between client engagements on projects around the world and continuing his authorship of the
EY Megaprojects Series.

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