Real options valuation of coal gasification products

Economic uncertainties and risks of political-geopolitical and legal aspects significantly affect the viability of energy and mining evaluation projects. Long-term projects are very sensitive to price fluctuations and the accurate prediction of future prices, quick measures taken against the resulting risks and operational flexibilities directly affect the success of the projects. Although traditional methods such as net present value (NPV) are still used to value large-scale energy and mining projects, it is well known that they fail to address the uncertainties and risks. Contrary to traditional valuation methods, real options valuation (ROV) has gained great popularity since the last 30 years as it considers uncertainty and risk as an opportunity and analyzes them correctly. In this study, it's aimed that various valuation methods associated with alternative projects for Turkey's Soma-Yaylakoy lignite field was performed by considering various uncertainties and risks. Project alternatives included supplying industrial coal to the market, assessing environmentally friendly and high valued strategic coal gasification products and establishing a thermal power plant to produce electricity. The thesis study is a pioneering study since it contains a comprehensive analysis of a real investment project for coal gasification together with a thermal power plant and the real data for underground coal mining. In the study, firstly, supplying industrial coal to the market and the power plant was valued by traditional methods. Then the valuation of a coal gasification project, having high capital investment and strategic importance, was made by using both Monte Carlo Simulation and Real Options Methods. The mean-reversion technique was used in predicting the long-term price of coal gasification products and predictions compatible with historical prices were obtained. In addition, the variables significantly affecting the projects were identified and deferring and expanding options associated with the projects were studied by using Black&Scholes and Binomial Methods. The traditional method produced low NPV for the project supplying industrial coal to the market and the power plant while the highest NPV was obtained for petrochemicals production by gasification project by using traditional and real options valuation methods. On the other hand, coal to SNG gasification project gave a negative NPV in traditional methods, but a positive NPV in real options methods. The results proved that traditional methods are not sufficient in valuing the projects including risk and uncertainty and methods such as Monte Carlo simulation, price prediction models, real options should be used as complementary methods that add more value to the projects and produce the realistic results.