Barcelona — The leading global contractors that are bidding to build the second wave of US LNG export terminals gave developers Thursday a simple message to think about on their flights home from Spain: "You get what you pay for."
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Register NowAs Gastech wrapped up in Barcelona, executives at Bechtel, Fluor, KBR, McDermott International and Spain's Tecnicas Reunidas sought to inject a sense of realism about the costs that are necessary to ensure projects are completed when the market expects to see them.
The concerted effort comes in the face of delays at several of the first wave export terminals under construction along the Gulf and Atlantic coasts, including at Freeport LNG's facility in Texas, Sempra's Cameron LNG site in Louisiana and Kinder Morgan's Elba Liquefaction Project in Georgia. Startup of Cheniere Energy's second export terminal, being built by Bechtel in Texas, is expected ahead of schedule.
"Enthusiasm is not a strategy," Fluor CEO David Seaton said during a panel discussion at the conference. "That's a lot of what we see with the new customers who are more the developer type. All they are doing is looking at their spreadsheet rather than the real cost of building one of these things."
With more than a dozen terminals being proposed as part of the second wave of US projects that are targeted to go online in the early- to mid-2020s, there is intense competition for long-term contracts with buyers of the capacity.
With that comes pressure to sign engineering, procurement and construction deals for the lowest possible amount.
"From my perspective, the way we hear about dollars per ton this and dollars per ton that. The answer is not the lowest dollar per ton," Bechtel President Alasdair Cathcart said. "The answer is we have collaborated and innovated to make sure we have the best possible cost, the best possible schedule and the best possible certainty of outcome."
Cameron LNG's experience is an example of what can happen when insufficient attention is paid on the front end to properly bidding for the realistic cost of construction, according to McDermott International CEO David Dickson, whose company inherited its contractor role on the project when it acquired CB&I earlier this year. It took a writedown in the second quarter because of extra costs related to construction.
"A lot of it went wrong at the time of the estimation," Dickson said at the conference. "Early engagement, technology, where we feel we can get closer to the customer in the early stages. In the US, particularly, where there is a lot of excitement about a new wave of LNG contracts, there are also challenges, especially on the construction side."
With so many projects, skilled workers could be harder to come by for the second wave of US projects. Tighter restrictions on immigration in the US under the Trump administration are also affecting the situation, the executives said. Invariably, that could drive up costs.
LESSONS LEARNED
Committed to not making the same mistake again, McDermott recently backed away from signing an EPC contract to build NextDecade's proposed Rio Grande LNG export terminal in Brownsville, Texas. It wants to secure a partner and have a better handle on the true cost of construction.
NextDecade has opened the job up to a competitive bid process, which will include Bechtel and Fluor.
Juan Llado Arburua, CEO of Tecnicas Reunidas, which agreed to an engineering contract for Venture Global's proposed Calcasieu Pass LNG export terminal in Louisiana, said builders don't want to be left holding the baby, so they are pushing back against developers' efforts to always secure a lower EPC deal than the previous project.
"We are trained to run risks, but we are not trained to be insurance companies," he said.
--Harry Weber, harry.weber@spglobal.com
--Edited by Jonathan Dart, jonathan.dart@spglobal.com