Economic analysis and risk management for the South Sumatra Natural Gas Pipeline Project in Indonesia

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Kim, Dong Hyun (M.S. in Energy and Earth Resources)

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The objective of this thesis is to analyze economic and risk factors for the South Sumatra Natural Gas Pipeline Project in Indonesia. The economic analysis aims to support Korea Gas Corporation (KOGAS)’s decision regarding next steps, such as a feasibility study or front end engineering design for the project. In scenario analysis, WACC ought to be less than 9 percent and the growth rate of gas demand is larger than 3 percent to meet KOGAS’s requirements for an investment. Monte Carlo simulation showed that the project has a project NPV of 90 million USD and project IRR of 11 percent on Scenario 1 which is the least profitable scenario. It means that this project could be a viable project for KOGAS, but there is a 36 percent probability that the project IRR would be less than KOGAS’ investment threshold. A sensitivity analysis indicates that a toll fee has the greatest impact on the project IRR among six variables. This thesis establishes mitigation strategies against the South Sumatra Natural Gas Pipeline Project’s significant risks.


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