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INTERVIEW: Bechtel Expects To Mitigate LNG Project Cost Pressures

Date : 12/08/2011 @ 12:40AM
Source : Dow Jones News
Stock : Santos Fpo (STO)
Quote : 11.91  0.08 (0.68%) @ 10:57PM
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INTERVIEW: Bechtel Expects To Mitigate LNG Project Cost Pressures

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Bechtel Group is confident the three gas-export projects worth over US$50 billion that it's building for international oil companies in Australia's Queensland state can be delivered on time and budget, a senior executive said Thursday.

Richard McIlhattan, Bechtel's general manager for the global LNG business, said cost and time schedules remained in place despite a tighteing of Australia's labor market driven by the huge scale of investments in energy and mining projects.

The three Queensland projects intend to ship liquefied natural gas to Asian customers by 2014 and 2015. Bechtel has also been contracted by Chevron Corp. (CVX) to build the US$29 billion Wheatstone LNG project in Western Australia state.

Many analysts warn that Australia's booming mining sector will crimp the supply of labor and push up costs, potentially throwing the developments off course. Woodside Petroleum Ltd. (WPL.AU) this year announced a third cost blowout and delay to its A$14.9 million Pluto LNG project in Western Australia, partly blaming a shortage of welders, pipe fitters and other tradespeople.

"Bechtel only takes on work that it believes it can complete on time, within budget, to quality, and safely," McIlhattan told Dow Jones Newswires. "Customers come to us for certainty of outcome. All of our previous LNG projects have been delivered on time and on budget, this includes our last project here in Australia: the Darwin LNG plant for ConocoPhillips (COP)."

McIlhattan said cost pressures are being mitigated by experienced project management teams and that extensive planning has been conducted through the early engineering and design processes.

"This enables us to ensure the projects will be successfully executed," he said.

A labor shortage means that more delays and cost blowouts at Australian projects are clearly possible, Noel Tomnay, the head of global gas at UK-based energy consultancy Wood Mackenzie said Wednesday. "But we also recognize that there's an opportunity because everyone's so aware of the risk now," Tomnay said.

Bechtel recently announced a new program in Australia to train 400 adult-aged apprentices to work on various gas projects. Two universities in Queensland this week established study centers for unconventional gas production, assisted partly by funding from the state government.

Energy companies often include buffers in their schedule and cost estimates to absorb unexpected delays. Santos Ltd. (STO.AU) Chief Executive David Knox says the $16 billion estimate for its LNG joint venture in Queensland is "conservative" and includes contingencies.

Managers of all three projects--being built by Santos and partners including Total SA (TOT); ConocoPhillips (COP), Origin Energy Ltd. (ORG.AU) and China Petrochemical Corp.; and Royal Dutch Shell PLC (RDSB) and PetroChina Co. (PTR)--this week said their developments remain on track. But the developments are yet to hit peak construction.

-By Ross Kelly, Dow Jones Newswires; +61-2-82724692; ross.kelly@dowjones.com



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