Thu, Jul 18 2024 18 July, 2024

Billions in cost overruns at Golden Pass LNG

The Golden Pass LNG project, backed by Qatar and ExxonMobil, is suffering from more than $2 billion in additional costs, forcing the project’s construction firm into bankruptcy.

Storage tanks at Golden Pass LNG on the Texas Gulf Coast (Photo: Nick Cunningham/Gas Outlook)

A major LNG project on the Texas Gulf Coast is facing enormous cost overruns, threatening to delay its completion beyond its expected early-2025 start date.

Golden Pass LNG, backed by Qatar and ExxonMobil and under construction in the Sabine Pass, Texas, will see billions of dollars in additional costs after its major construction contractor announced in May that it was filing for Chapter 11 bankruptcy.

Zachry Industrial, which until recently had thousands of workers on-site building the facility, said in May that it needed to file for bankruptcy, citing pandemic-related cost inflation and delays.

But Zachry and Golden Pass are at odds over which side is at fault for ballooning costs. Golden Pass stopped paying Zachry, forcing the construction company to idle its workforce and file for bankruptcy. Reuters reported that Zachry had been incurring expenses at a rate of $30 to $40 million per week, but had only been receiving payments from Golden Pass of about $70 million per month.

“Since beginning work on the Golden Pass LNG project in 2019, we have maintained our usual high standards of excellence and gone above and beyond to accommodate the schedule and demands of GPX and its shareholders, QatarEnergy and ExxonMobil,” Zachry Industrial CEO John Zachry said in a statement in May.

The bankruptcy filing and the ongoing dispute between Zachry and Golden Pass has led to additional costs exceeding $2 billion. The bitter legal standoff means that progress on the facility has come to an abrupt halt. Golden Pass said that Zachry’s workforce shrank from 6,000 to a skeletal crew of approximately 140 workers.

On June 18, Golden Pass filed a motion in bankruptcy court, seeking to remove Zachry from the project altogether.

“Zachry has stopped performing its obligations under the EPC (engineering, procurement and construction) contract, fired thousands of workers, stopped paying its subcontractors and abandoned the Golden Pass project that it committed to building at a lump-sum fixed price,” Golden Pass stated in its filing.

Golden Pass has not provided an update on its expected completion date. Previously, it expected operations to commence in the first half of 2025, but has admitted that the financial battle with Zachry will force delays to that timeline.

Golden Pass LNG could not immediately be reached for comment. Zachry declined to comment.

The budget-busting cost overruns for project development may not be an isolated case. According to Reuters, labour costs for LNG developers have surged by 20 percent since 2021. Sempra LNG is reconsidering using engineering firm Bechtel for its Cameron LNG expansion, Reuters said.

The news is not all bad for the LNG industry. On June 26, Saudi Aramco and Sempra announced a non-binding agreement for a 20-year offtake deal for the second phase of Port Arthur LNG, which is located just a few miles away from Golden Pass. The substantial 5-million-tonne-per-annum deal, plus a potential 25 percent equity stake in the project for Aramco, is a substantial boost of momentum.

Aramco’s foray into Port Arthur LNG comes just a few weeks after it signed a similar non-binding deal with NextDecade for the fourth train of Rio Grande LNG in Brownsville, Texas.

“This agreement is a major step in Aramco’s strategy to become a leading global LNG player,” Nasir K. Al-Naimi, Aramco Upstream President, said in a statement after announcing its agreement with Port Arthur LNG.