ModelChoice decision tree · Oil and gas

LNG Export Terminal Investment

Build a full-scale LNG export terminal, a modular first phase, a floating unit, or nothing?

Complexity: ★★★★★
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From the model’s decision tree

Best first decision: Build Modular (Phase 1)

The expected value of each first option when every later decision is also made well (the tree rolled back).

First decision	Expected value
Build Full-Scale Terminal	$5,000,000
Build Modular (Phase 1)	$1,320,062,500	✔ best
Floating LNG (FLNG)	−$388,500,000
No Investment	$0

Measure	Value
Expected value of the best strategy	$1,320,062,500
Chance of a loss on the best strategy	37.8%
Best outcome on the best strategy	$8,300,000,000
Worst outcome on the best strategy	−$2,350,000,000

The best strategy: chance of each outcome or less

S-curve (cumulative probability) of Build Modular (Phase 1) from the saved simulation.

The decision

An energy company is evaluating investment in LNG export capacity on the US Gulf Coast. Global demand for LNG is growing but regulatory approval is uncertain and construction costs for mega-projects frequently overrun.

Objective

Maximize expected NPV over 25-year project life. This model illustrates mega-project decision-making with regulatory, construction, and market risks.

The options

Option 1: Full-Scale Terminal - 15 MTPA ($6B): Two liquefaction trains, full port facilities. Economies of scale but maximum exposure to permitting risk (25% denial) and construction cost overruns.
Option 2: Modular Build - Phase 1: 6 MTPA ($2.5B): Single train with expansion option. Lower permitting risk (smaller footprint). If Phase 1 secures strong offtake contracts, invest $2.2B for Phase 2 train.
Option 3: Floating LNG - FLNG ($3.5B): Deploy offshore, avoiding onshore permitting entirely. Novel technology with higher technical risk (30% chance of major issues) but no land-use conflict.

The decision tree

The tree has 2 decisions, 10 chance events and 24 outcomes. The best path is open: at every decision the best choice is marked, and the expected value beside each branch counts every cash flow from the start. Open any other branch to see what follows it.

DecisionChance event+$ cash flow on the branch

Decision: LNG Project Decision

Build Full-Scale Terminal −$6,000,000,000expected $5,000,000
Chance: Permitting & FEED
- 40% Approved On Timeexpected $3,550,000,000
  Chance: Construction & LNG Market
  - 30% Strong LNG Demand +$15,000,000,000payoff $9,000,000,000
  - 45% Normal Market +$9,000,000,000payoff $3,000,000,000
  - 25% Oversupply / Low Price +$4,000,000,000payoff −$2,000,000,000
- 35% Delayed 2 Years −$800,000,000expected $100,000,000
  Chance: Market (Delayed Project)
  - 25% Strong Demand +$12,000,000,000payoff $5,200,000,000
  - 45% Normal Market +$7,000,000,000payoff $200,000,000
  - 30% Oversupply +$2,500,000,000payoff −$4,300,000,000
- 25% Permit Denied +$200,000,000payoff −$5,800,000,000
Build Modular (Phase 1) −$2,500,000,000expected $1,320,062,500 ✔ best
Chance: Phase 1 Permitting
- 55% Approvedexpected $2,713,750,000
  Chance: Phase 1 Market Response
  - 35% Strong Contractsexpected $5,825,000,000
    Decision: Expand to Phase 2?
    Build Phase 2 Train −$2,200,000,000expected $5,825,000,000 ✔ best
    Chance: Phase 2 Market
    55% Continued Strong +$13,000,000,000payoff $8,300,000,000
    45% Market Softens +$7,500,000,000payoff $2,800,000,000
    Stay Phase 1 Only +$6,000,000,000payoff $3,500,000,000
  - 40% Adequate Contracts +$4,500,000,000payoff $2,000,000,000
  - 25% Weak Demand +$2,000,000,000payoff −$500,000,000
- 30% Delayed −$400,000,000expected $600,000,000
  Chance: Phase 1 Delayed Market
  - 30% Strong Contracts +$5,500,000,000payoff $2,600,000,000
  - 40% Adequate +$3,500,000,000payoff $600,000,000
  - 30% Weak +$1,500,000,000payoff −$1,400,000,000
- 15% Denied +$150,000,000payoff −$2,350,000,000
Floating LNG (FLNG) −$3,500,000,000expected −$388,500,000
Chance: FLNG Construction
- 30% On Budget & Scheduleexpected $2,125,000,000
  Chance: FLNG Market
  - 30% Premium Pricing +$8,000,000,000payoff $4,500,000,000
  - 45% Normal Pricing +$5,500,000,000payoff $2,000,000,000
  - 25% Discount Pricing +$3,000,000,000payoff −$500,000,000
- 40% Overrun (+25%) −$875,000,000expected $60,000,000
  Chance: FLNG Market (Overrun)
  - 25% Premium +$7,000,000,000payoff $2,625,000,000
  - 45% Normal +$4,500,000,000payoff $125,000,000
  - 30% Discount +$2,200,000,000payoff −$2,175,000,000
- 30% Major Technical Issuespayoff −$3,500,000,000
No Investmentpayoff $0

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Key assumptions

Assumption	Value	Notes
Full-Scale Terminal	$6,000,000,000	15 MTPA, 2 trains, full port
Modular Phase 1	$2,500,000,000	6 MTPA, single train
Modular Phase 2 Expansion	$2,200,000,000	Additional 6 MTPA train
FLNG Vessel	$3,500,000,000	Offshore, no land permitting
Full-Scale Permit Approval	40%	On time; 35% delayed, 25% denied
Modular Permit Approval	55%	Smaller footprint, easier approval
FLNG Technical Issues	30%	Novel technology risk
LNG Strong Demand NPV	$15B	Full-scale, approved on time
Project Life	25 years	Long-term offtake agreements

The figures are illustrative: the companies and numbers are invented for teaching.

Try it in ModelChoice

Strategy Table. Compare full-scale vs modular vs FLNG with risk-return frontier
Sensitivity Analysis. How does LNG price and permit probability affect project value?
Risk Profile. Which technology has the best risk-adjusted return?

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An illustrative example: the figures are invented for teaching. Last updated 9 October 2026.