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Section Heading

Section text goes here

Santos GLNG – a lean supply chain

Scope

• Overview of Santos Gladstone Liquefied Natural Gas (GLNG)

Project

• Overview of the GLNG Supply Chain – first principles

• Centres of Gravity

• GLNG Supply Chain – optimised

• Benefits

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GLNG Overview

• Partners: Santos (operator, 30% shareholder), PETRONAS

(27.5%), Total (27.5%), KOGAS (15%).

• US$18.5 billion gross capex estimate from FID to end 2015.

• Project revenue underpinned by binding long-term LNG sales

contracts with PETRONAS and KOGAS covering more than 90% of

LNG plant capacity.

• Existing and sanctioned upstream gas processing capacity of 725

TJ/d.

• 420-kilometre gas transmission pipeline.

• LNG plant capacity of 7.8 mtpa.

• When fully operational, GLNG will average two LNG cargoes per

week, or just over 100 per annum.

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24/7 drilling operations

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Major gas processing facilities

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420km pipeline

4.3km under-sea tunnel

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Two-train, 7.8 mtpa LNG facility

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Utilising world-class technology

Overview of GLNG Supply Chain – 1st Principles

BRISBANE

Compression

Hub

Well Sites

ROMA / FAIRVIEW

GLADSTONE

CIS

650km /

1 day

550km /

1 day

Overview of GLNG Supply Chain – Requirements

• In-scale ~ $100M / 35k line items of inventory to support operations.

• Execute: ~ 250 goods & services contracts

• Dependencies include:

• Drilling operations

• Gas treatment and compression facilities

• Gas transmission pipeline

• LNG production facilities

• Demand profile is variable or uncertain

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SANTOS 2014 12 |

Effect of Actual Demand

Working

Stock

Safety

Stock

Time

Expected or

Average Inventory

Basics of Inventory Management

16297490

Demand deductions

• Demand profile is variable or uncertain and largely can’t be used for

initial planning

• Cost of “stock out” in lost production and revenue far exceeds cost

of supply

• Long term plan is 80:20 PM to CM. Initial commissioning and operations is

the opposite.

• Overstock and then optimise

• Establish call off contracts and then procure when work packages become

firm. Operator to carry the risk

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Centres of Gravity

• “One must keep the dominant characteristics of both

belligerents in mind. Out of these characteristics a

certain centre of gravity develops, the hub of all power

and movement, on which everything depends. That is

the point against which all our energies should be

directed.” On War, Carl von Clausewitz, 1832

• “Any important sources of strength” Warfighting, Marine

Corps Doctrinal Publication 1, 1997

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Centres of Gravity – GLNG Supply Centres of

Gravity

Gas treatment &

compression

Drilling &

completions

LNG Production

Stakeholder RAM of

compression

modules

Rig availability and

operations

RAM of key

production modules

Supply Chain Simple and

integrated supply

chain for key

material

Simple and

integrated supply

chain for key

material

Reliability &

availability of critical

spares

Deductions Simple supply

chain for

stakeholder with

access to tech

material. Potentially

overstock until

usage confirmed.

Simple supply chain

for stakeholder with

ready access to

material. Min N+1

Redundancy

Technical inventory

with technical QA/QC

requirement. Locate

with tech capability

and minimise moves.

Potentially overstock

until usage

confirmed.

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Overview of GLNG Supply Chain – Optimised

Roma Logistics

Hub

BRISBANE

Compression

Hub

Well Sites

ROMA

GLADSTONE

CIS

500km /

1 day

550km /

1 day

Storage

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Supply Chain Optimisation

• Drilling Operations

– Leap frog containerised

support

– Containerised high

usage material located

at Rig site.

– Container replenished

and delivered to ne

location every 3-4 days

– MTA with main

contractors with short

term engagement

• Inventory Optimisation

– 35k items catalogued

– Lead time and price

confirmed on use

– Supplier performance

management

– Automated min/max

review on top 30% usage

– Maximise use of

rebuildables

– Only manage items that

need to be managed

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Supplier dashboard

Benefits

• Contracts

MTAs with releases against firm scopes keep balance of

risk with the Operator

Contracting approach suits current market conditions

• Material

Technical inventory located in suitable storage mediums

adjacent to technical support. Minimise technical labour

Common use and critical items located adjacent to Rig

operations. Minimise Rig downtime

Reduce transport requirements / cost & safety exposure

Non-critical items can be provided with minimal control

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Key observations

• Design your supply chain to suit your industry, your

dependency and the market conditions

• Waste and a lean supply chain are relative concepts

• Measure waste across total line of operation or value

chain, not just supply chain inputs.

• Value Stream Mapping is a valuable (essential) tool.

• Link cost and waste to EBITDA for lasting improvement.

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