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Soaring Costs Put New U.S. LNG Export Projects at Risk of Delays

Surging labor and construction costs are plaguing some major U.S. LNG export projects, threatening to delay new LNG supply to international markets.   

Wage growth since 2021, a shortage of skilled workers, and rising costs of materials with the inflation over the past three years have increased overall contractor costs for U.S. LNG export projects, analysts tell Reuters.

Wages for skilled workers have jumped by 20% since 2021, and in some cases contractors have had to pay a per diem rate to retain these workers, Travis Woods, president of Gulf Coast Industrial Group representing more than 1,500 contractors in Texas and Louisiana, told Reuters.   

In addition, engineering, procurement, and construction (EPC) contracts for new LNG export plants have jumped by up to 25% since 2021, according to consultancy Rapidan Energy Group.

In one of the biggest setbacks so far, Zachry Holdings, the contractor building Exxon and QatarEnergy’s Golden Pass LNG project, initiated a voluntary court-supervised Chapter 11 process in May and fired thousands of workers. Progress on the $10-billion LNG export project stalled. 

“As the project’s lead contractor, we have navigated significant challenges and disruptions stemming first from the COVID-19 pandemic and, more recently, international geopolitical issues,” chairman and CEO John Zachry said.  

“Because we have been unable to find a path forward, we have been forced to take action to protect our business. The process we are starting today provides us mechanisms to initiate a structured exit from the GPX project.”

Last week, Exxon and QatarEnergy asked a bankruptcy court to immediately remove Zachry Industrial from the project.

“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,” Exxon and QatarEnergy said in a court filing carried by Reuters.

To share the burden of rising costs, some other U.S. LNG developers are welcoming foreign investors in their projects.

Last month, Abu Dhabu’s ADNOC bought an 11.7% stake in Phase 1 of NextDecade’s Rio Grande LNG export project in Texas, announcing its first strategic investment in the U.S. ADNOC has also signed a 20-year LNG offtake agreement from Rio Grande LNG Train 4 with NextDecade, subject to a final investment decision.

NextDecade has also secured an offtake deal from train 4 at Rio Grande LNG with Saudi oil giant Aramco under a 20-year preliminary agreement.

By Tsvetana Paraskova for Oilprice.com

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