The scale of contractual disputes over the construction of the $US40 billion ($55 billion) Ichthys LNG project in northern Australia has been laid bare by US contractor KBR just after its majority owner Japan's Inpex Corporation has celebrated the start-up of shipments from the massive venture.
KBR, a member of the JKC consortium that won the $US15 billion main engineering and construction contract for the Ichthys LNG plant near Darwin in 2012, has outlined several legal cases and arbitration disputes with Inpex, involving more than $US900 million of extra costs for changed work orders.
Credit Suisse energy analyst Saul Kavonic said he suspected claims of "well in excess of $US1 billion" could be in dispute, "the acuteness of which appears to be beyond the normal contractual argy-bargy usually expected during LNG project construction".
KBR has also revealed a further delay in the construction of the power plant at the site, which has suffered a series of problems. It has allocated an additional $US100 million to cover the completion of the power plant and its commissioning, which is only expected to be completed in the June quarter next year, chief financial officer Mark Sopp said.
Construction disputes over large and complex LNG projects are not uncommon and the ones at Ichthys follow disputes impacting Chevron's $US54 billion Gorgon LNG project in Western Australia, Santos' $US18.5 billion GLNG project in Queensland and others.
Chain reaction
Back in 2015, large law and accounting firms were gearing up for a wave of contractual disputes across the sector, which has seen more than $US200 billion of investment in new LNG plants in the past eight or nine years. Many of the problems emerge from changes in the scope of work, which the contractor can seek to push responsibility for back on the client. Claims can spark a chain reaction upstream and downstream as subcontractors seek to claw back funds.
KBR chief executive Stuart Bradie told investors last week that JKC received a "very favourable" ruling from an arbitration process over Ichthys in October "related directly to reimbursable costs that were being contested by the client".
Mr Sopp put the figure at $US330 million, still leaving "ballpark $US600 million" of "unapproved" change orders.
About half of that is JKC's claim from the original subcontractors on the power plant, he said, which may be the subject of a settlement process.
"And the other half are other change orders, some of which can just be negotiated and hopefully can come down. And one chunk of that is up for another arbitration case that we're working on right now as well that hopefully will turn out in our favour."
Mr Bradie said that with the plant now producing LNG and starting to get cash in the door, he hoped JKC "can sit down with the customer and actually conclude a negotiated settlement".
First cargo to Japan
Inpex's Australian head office in Perth declined to comment on commercial matters. The company is partnered in the venture by French major Total and LNG customers.
Meanwhile, speculation has persisted that the maiden cargo from Ichthys LNG that arrived at Inpex's Naoetsu terminal in Japan on October 31 may be mostly comprised of a cargo that was imported earlier to cool down the liquefaction units in preparation for the start-up of production.
Mr Kavonic said he thought the first cargo and possibly the second was "re-exporting imported cool-down cargoes".
He said Ichthys LNG appeared to be running relatively well but pointed to "risk in the upstream" part of the project involving gas production from the offshore Browse Basin fields, which could see a slower ramp-up but which may only be made apparent after the visit of Japanese Prime Minister Shinzo Abe to Darwin on November 16.
An Inpex spokeswoman said the company "commenced LNG production at the Ichthys LNG onshore processing facilities nearly two weeks ahead of the first LNG export cargo.
"The first export included a combination of Ichthys LNG and some remaining import LNG, which is common for a maiden LNG cargo," she said. "Ichthys LNG has also exported two additional LNG cargoes since its maiden export."
https://www.afr.com/business/construction/i...20181106-h17lkp 
Oct 21 2018, 09:30 PM
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