MAN 5402 – ASSIGNMENT 2
MAN 5402 – ASSIGNMENT 2
In this assignment, you are required to examine the root causes or project failure in oil and
gas mega-projects with particular reference to the Gorgon Project.
Liquefied natural gas (LNG) is natural gas (predominantly methane, CH4) that has been
converted to liquid form for ease of storage or transport. Liquefied natural gas takes up
about 1/600th the volume of natural gas in the gaseous state.
Liquefied Natural Gas provision to market involves gas feed gas supply, liquefaction,
transportation through LNG Tankers and final regasification terminal. LNG is a front-end
capital intensive project, with technical complexity and a long lead payback period.
LNG projects are referred to trains because of the interrelation from gas production,
liquefaction, transportation, receiving terminals and re-gasification. Sometimes it may
involve a long pipeline network from gas field to the LNG Plant. For the purpose of financing
the major stages of the train are gas development; liquefaction plant, LNG Tankers and
receiving terminals. The diagram below is a simple presentation of LNG Chain. The raw gas
point may come from a dedicated and integrated field or a contract for feed gas supply. There is high fixed cost in each of the stages with the liquefaction taking the bigger share of
capital cost. Common risks associated with the construction stage are cost overrun,
schedule delay and defect in design.
“In the commercial development of an LNG value chain, LNG suppliers first confirm sales to
the downstream buyers and then sign long-term contracts (typically 20–25 years) with strict
terms and structures for gas pricing. Only when the customers are confirmed and the development of a greenfield project deemed economically feasible, could the sponsors of an
LNG project invest in their development and operation. Thus, the LNG liquefaction business
has been limited to players with strong financial and political resources.
LNG is shipped around the world in specially constructed seagoing vessels. The trade of LNG
is completed by signing an SPA (sale and purchase agreement) between a supplier and
receiving terminal, and by signing a GSA (gas sale agreement) between a receiving terminal
and end-users. Most of the contract terms used to be DES or ex ship, holding the seller
responsible for the transport of the gas. With low shipbuilding costs, and the buyers
preferring to ensure reliable and stable supply, however, contract with the term of FOB
increased. Under such term, the buyer, who often owns a vessel or signs a long-term charter
agreement with independent carriers, is responsible for the transport.”.
Company A is building a LNG facility as part of its intention to service a growing demand for
LNG in the Asia Pacific region. Oil and Gas projects have traditionally had a poor record for
schedule performance (see EY report). As detailed in Figure 7, EY define a number of causal
factors. The Gorgon project has had a poor record for meeting original plans. One of the
important causal factors is poor contractor management – more specifically for the Gorgon
project it has been suggested that the use of earned value for rewarding performance is
The construction of the LNG facility has been progressed via a range of contracts with
various developers and suppliers. These contracts were originally established without
considering the critical path for the overall project. The contractors are rewarded each
month based on their performance against their original contracts. The contracts have been
managed via a sophisticated Earned Value system whereby contract performance is
measured by their performance against calculated earned value. There is a concern that the
contracted parties are not driven by a concern for the critical path and also that sometimes
the contractors (understandably perhaps) inflate their “earned value” calculation by
aggregating their overall contract performance by including performance against relatively
minor activities that ultimately have no relevance to the critical path.
Using the references provided as your primary source complete a goal map and CRT to
determine the root cause of planning failures at Gorgon. Develop an evaporating cloud to
suggest ways that these issues may be resolved in future projects.
1. Complete an Intermediate Objectives Map to define a clear and precise articulation
of the goal and necessary conditions for the Gorgon project (IO map). 2. Based on this IO map, complete a Current Reality Tree to document the issues with
the project (the IO map will allow description of the UDEs relative to the goals and
necessary conditions) and the underlying root cause/s. Use the detailed case
description and materials provided as well as outside research to create the CRT. The
logic for arriving at the root cause should be clear and traceable
3. Select one suitable root cause (the most obvious and the one that is possible to
address) and develop an evaporating cloud diagram to highlight the ultimate core
conflict/s related to this root cause. Suggest possible false assumptions or injections
that may resolve the core conflict/s identified. Please Note: The assignment should be submitted as a single WORD FILE through Turnitin, and
should contain the IO map, CRT and the evaporating clouds. Only 1 member of the
group should submit it, but the ECU cover sheet for the assignment must contain the
names and student numbers of all members of the team. Some short explanation of the UDEs and rationale may be needed for the CRT. There will need to be a short explanation of the ECs including detailing false
assumptions and possible injection/s to resolve the conflict/s. A useful software tool to develop the clouds is Flying Logic – note this has only a 30day expiry so care needs to be taken as to when to start the trial. www.evaporatingclouds.com can be used to draw the final submitted cloud
MAN 5402 – ASSIGNMENT 2