LNG producers expect cost risks

Construction delays and cost blowouts could hit the next wave of liquefied natural gas (LNG) projects as there are a limited number of contractors able to handle the huge projects, three developers said.

Around $200 billion in projects across the globe from Australia to the United States are racing to be approved over the next two years, vying to provide around 65 million tonnes of new annual supplies that are needed by 2025, according to estimates by consultants Wood Mackenzie. The race is not just to make final investment decisions (FIDs) on projects, but to enter front end engineering and design (FEED) work to lock in contractors before others snap them up, the three developers said at Credit Suisse’s Australian Energy Conference.

“Unless you’re in FEED in the next six to nine months, unless you’re in FID in the next two years, there’s going to be no one to build your project,” Oil Search Executive General Manager Ian Munro told the conference.

Oil Search aims to enter FEED in the next few months with its major partners Exxon Mobil Corporation and Total on a $13 billion expansion of the PNG LNG plant in Papua New Guinea.

Martin Houston, co-founder of Tellurian, which wants to make FID this year on a $30 billion LNG project in the United States, said LNG developers who fail to sign major contractors, such as Bechtel Corp or Chiyoda Corp, who can offer fixed price construction contracts are likely to struggle to make much profit. Tellurian has lined up Bechtel for its 27.5 million-tonne-a-year project with a lump sum contract, which Houston said gave it an advantage over rival projects.

“We can say to our customers this is exactly the price you’re going to pay. We’re competing with second wave projects that have absolutely no idea how they’re pricing anything,” Houston told the conference.

Reuters