Page 6 - NorthAmOil Week 27

NorthAmOil COMMENTARY NorthAmOil
Cameron LNG’s step
A deal has been reached on Cameron LNG’s construction costs, writes Ed Reed
US GULF COAST
WHAT:
McDermott and Chiyoda have secured additional rewards for their work on Cameron LNG.
WHY:
Construction has been harder than initially expected, putting nancial pressure on the contractors.
WHAT NEXT:
Sempra has big plans for expansion in the LNG export sector.
SEMPRA Energy has reached a deal with McDermott International and Chiyoda Inter- national reorienting the terms of the Cameron LNG construction project. The exact terms were not disclosed but it represents a win for the builders, who have struggled to control costs on the work.
e liquefaction plant, in Hackberry, Lou- isiana, shipped its commissioning cargo from Train 1 on May 31. Two more trains are under construction, which will provide export capacity of more than 12mn tonnes per year. Nameplate capacity is 13.9mn tpy. e second train should start in the rst quarter of 2020 and the third in the second quarter of that year.
A joint statement from McDermott and Chi- yoda on July 5 noted the settlement provided bonus payments for achieving milestones on the next two trains and aligned start dates for the plans. e deal “fully aligns and strengthens” the construction joint venture’s commitment “to complete the project in accordance with the cur- rent schedule”.
McDermott’s vice president for projects, Samik Mukherjee, noted the strength of the companies’ relationship with Cameron LNG. “We are extremely pleased with the agreement, which is a testament to the progress and the strong performance of our project team. It was cra ed with the full support and collaboration of Cameron LNG to optimise the timing and cost-e ectiveness of the remaining work – and it does so in a way that we believe will bene t all involved parties.”
e positive nancial impact of the deal is already accounted for in McDermott’s 2019 guidance, it said.
Chiyoda and McDermott have complained of costs rising on the project before. Work on Cameron LNG has been gruelling because of the project’s remote location, contractors have complained, which has made it hard to retain labour. In an attempt to make up lost time, more workers were taken on, at one point reaching 9,000 employees.
e Japanese company reported a $972mn
loss for a nine-month period in 2018, based largely on the Cameron LNG project. McDer- mott took a $168mn charge in the fourth quarter of the year on the project, following a $482mn charge in the third quarter.
At the time, Chiyoda said it was working to “prevent further cost increases at Cameron LNG, and take [all] necessary countermeasures under thespecialtaskteamnewlyestablished”.
In particular, the company said it intended to recover additional costs incurred from Cameron LNG.
Impact
Sempra, in a statement on the agreement, said it was “reasonable to expect that the overall eco- nomics of Cameron LNG will not signi cantly change as a result of this agreement”. e com- pany anticipates earning $400-450mn per year from the three trains at the project.
Sempra upped its estimate of full-year run- rate earnings from the project in March. It had previously projected earnings of $365-425mn per year from the project. The company has guaranteed up to $3.9bn of project nancing for the Cameron LNG plan, with the total project nancing sum on the development amounting to $7.4bn. Financing was led by the Japan Bank for International Co-operation (JBIC), heading up a group of 29 commercial banks.
At the time it reached nal investment deci- sion (FID) on the project, it was estimated to cost around $10bn in total. In its annual report, it acknowledged the actual price would be higher than this, but still within the budgeted contingency.
Expansion plans
Sempra seems little daunted by its agreement for a higher bill with its contractors, given the com- pany’s plans for additional liquefaction projects. It is also working on a plan for two more trains at Cameron LNG and two more storage tanks.
Beyond this, it is also planning the Port Arthur LNG project in Texas, and the Energia Costa Azul LNG plan in Mexico. In all, Sempra is working on plans for 45mn tpy of liquefaction.
While the US has a substantial number of LNG export plans on the drawing board, Sempra seems particularly well positioned for growth in this area. For example, Saudi Aramco signed a heads of agreement (HoA) on the Port Arthur LNG project in late May. is lined up the poten- tial acquisition of 5mn tpy of LNG from the ven- ture, in addition to a 25% equity stake.™
OWNERS:
Cameron LNG is owned by Sempra LNG, Total, Mitsui & Co. and Japan LNG Investment. The latter company is owned by Mitsubishi Corp. and Nippon Yusen Kabushiki Kaisha (NYK). Sempra has an indirect stake of 50.2% in the plant.
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w w w . N E W S B A S E . c o m Week 27 11•July•2019