This audio is automatically generated. Please let us know if you have any comments.
Dive brief:
- Work to complete the stalled $11.6 billion Golden Pass liquefied natural gas export terminal in Port Arthur, Texas, may move forward after prime contractor San Antonio-based Zachry Holdings reached a agreement with the project owners to allow him to exit the project. .
- Zachry Holdings filed for Chapter 11 bankruptcy protection in May, saying the megaproject was at least $2.4 billion over the original budget, leading to hemorrhaging money. The contractor has had years of disputes over costs, payments, layoffs and project delays with developer Golden Pass LNG Terminal LLC.
- Wednesday, the United States Bankruptcy Court for the Southern District of Texas approved Zachry’s settlement agreement with developers and joint venture partners CB&I and Chiyoda International Corp., according to a news release from Zachry Group. The judgment fully resolves all financial and legal disputes between the parties.
Diving knowledge:
Golden Pass LNG is formed by joint developers Qatar Energy and ExxonMobil, which respectively have a 70% and 30% stake in the methane gas project. The agreement allows them to choose a new contractor and resume construction while Zachry Holdings exits the project, according to the release. The settlement has been provisionally approved in order for Zachry to complete its court-supervised restructuring process.
The project, located in Port Arthur’s Sabine Pass neighborhood, was originally estimated to cost $9.25 billion in 2019, but that skyrocketed by 25% in August 2022 due to COVID-19 and geopolitical issues. A separate case filed in May by affiliate Zachry Industrial alleges that the project began to exceed the expected costs Not long after 2019 began, according to the San Antonio Business Journal. As these costs exceeded $1 billion over the overall budget, the company filed numerous change order requests to compensate.
However, Zachry alleges in court documents that the project’s owners were uncooperative, rejected most of his change orders and only compensated a portion of the cost overruns as he struggled to finish the project on time. These issues eventually led to Zachry Holdings file for bankruptcy in Mayciting “significant financial strain” from ongoing cost and schedule disputes.
In the months leading up to May, Zachry alleges he was losing about $30 million each week while only being paid $70 million per month, according to the San Antonio Business Journal.
Zachry had already been making moves to disassociate himself from the project, according to the San Antonio Business Journal. An agreement reached in early June allows the two remaining contractors, Houston-based CB&I, owned by McDermott International, and Japanese engineering firm Chiyoda International Corp., to continue with certain work, including site maintenance, management environmental and safety.
Golden Pass acknowledged the court’s approval of the interim order and said it is committed to the safe and successful completion of the project.
“This allows Golden Pass and our construction contractors McDermott and Chiyoda to step up construction activities on site and move our LNG terminal forward. Going forward, we are focused on getting people back to work, including workers and local vendors, and move forward on this critical energy project,” a Golden Pass LNG spokesperson said in an email.
Does LNG affect a trend?
The Golden Pass project is on the site of a former import terminal that was converted to process methane gas for export, according to Reuters. With an annual export capacity of approximately 18 million tonnes, it is expected to do just that expand the offer of the fuel It’s not the only massive LNG project in the works in the area: Bechtel was recently selected to build Phase 2 of a $13 billion Port Arthur plant.
The projects are part of a wave of new LNG export capacity coming on stream as these fossil fuel projects become less profitable and renewable energies are taking off. An April report from the Institute for Energy Economics and Financial Analysis sees the trend the drop in LNG prices and the reduction in demand accelerating faster than expected.
“Lummy demand growth combined with a massive surge of new export capacity is poised to send global LNG markets into oversupply within two years,” according to the report.
In fact, gas plants must be retired at a faster rate stay in line with global climate goals to limit temperature rise to 2.7 degrees, a threshold that, if exceeded, is expected to cause critical damage to the planet and more extreme weather.
This means that “any new gas plants built in the future are at risk of becoming stranded assets and being decommissioned before the end of their economic life, having to include carbon capture and storage or experience significant underutilization,” according to the Global Energy Monitor.
Golden Pass was originally supposed to be completed by the end of 2024, but the terminal is now expected to begin operations in 2025.
