Projects face delays amid economic slowdown

Projects across the energy space are facing delays as companies cut budgets amid a dramatic economic slowdown fueled by oversupply and a precipitous drop in petrochemical demand during the global COVID-19 pandemic.

Many projects continue, but others have been delayed, some without new timelines. Here is a limited sample of reported delays in the LNG and refining sectors at press time.

LNG FID delays

Oversupply in the LNG market exacerbated by demand decline caused by the pandemic will maintain price pressures for the near-term, leading to project delays.

“The unparalleled price crash has prompted LNG companies to reduce capex and defer financial investment decisions (FID) on their respective projects,” said Haseeb Ahmed, GlobalData oil and gas analyst, in an Apr. 23 release.

Despite the historic OPEC+ deal agreed in April, given the severe drop in demand across the globe oil prices are unlikely to show immediate recovery, said Ahmed. “This effectively translates to the likelihood of LNG operators delaying discretionary expenditure, while having a unidirectional focus on improving operational efficiencies, which can further delay LNG projects.”

Woodside Petroleum Ltd., as part of its late-March expenditure reduction, said it is looking to push FID for its Pluto Train 2 by a year to 2021 (OGJ Online, Mar. 27, 2020). The push out is likely to move start-up to 2025 from 2024.

On Mar. 23, Santos Ltd. reduced its capital expenditures budget by $550 million, possibly delaying sanction of its Barossa gas project in Australia. The delay in FID, which the company had expected to make this year, may affect Darwin LNG terminal expansion plans, said GlobalData, as Barossa project has been identified to provide gas to the terminal once it stops receiving gas from the Bayu-Undan field.

Energy Transfer LP’s Lake Charles LNG export project is undergoing restructuring after Shell’s announcement that it won’t proceed with an equity investment due to market conditions. Energy Transfer has taken over development of the project and is evaluating various alternatives to advance the project, including the possibility of bringing in one or more equity partners and reducing the size of the project from three trains (16.45 million tonnes/year of LNG capacity) to two trains (11.0 million tpy). FID on the project has been delayed until 2021.

Funding by First Wall Street Capital Corp. for LNG Ltd., Sydney, fell through this year, risking activities of portfolio companies Magnolia LNG LLC, a US-based subsidiary, which is developing an 8-million tpy or greater LNG export terminal, in the Port of Lake Charles, La., and Bear Head LNG Corp. Inc., a Canadian-based subsidiary, which is developing an 8-12 million tpy LNG export terminal in Richmond County, Nova Scotia. LNG9 PTE Ltd., Singapore, withdrew its takeover bid for LNG Ltd. in mid-April (OGJ Online, Apr. 14, 2020).

Western Gas Corp. Pty Ltd. is likely to delay its Equus Floating project, citing COVID-19-induced LNG demand uncertainty. The Perth-based company said in September 2019 that the gas project offshore Western Australia was on track for coming on stream in 2024. That estimate followed completion of an “upstream-to-LNG development plan” and the commencement of project financing and partnering. WGC Executive Director Andrew Leibovitch said the engineering and design process undertaken by development partners McDermott and Baker Hughes had delivered a globally competitive, midscale LNG development plan for the Equus fields (OGJ Online, Sept. 11, 2019).

ExxonMobil, when noting a 30% reduction in its 2020 capital spending budget Apr. 7, said FID for its Rovuma LNG project in Mozambique, originally expected later this year, has been delayed.

Sempra has delayed an expected third-quarter 2020 FID for the 13.5-million tpy Port Arthur LNG liquefaction plant in Texas due to market conditions. The company has sales agreements in place for 70% of the plant’s output. 

In early April, BP Mauritania Investments Ltd. declared force majeure to Gimi MS Corp., a subsidiary of Golar LNG Ltd., stating that due to the outbreak of COVID-19, BP could not receive floating LNG plant Gimi by its target connection date in 2022. Gimi was to have been used to develop the Greater Tortue Ahmeyim project offshore Mauritania and Senegal. BP is petitioning for a 1-year delay (OGJ Online, Apr. 8, 2020).

Construction on Woodfibre LNG’s proposed $1.8 billion LNG project north of Vancouver, BC, is delayed until summer 2021. The year-long delay to begin construction on the 2.1 million tpy project is due, in part, to effects of the COVID-19 pandemic.

Pieridae Energy Ltd. said FID on its Goldboro LNG project in Nova Scotia, Canada, has been delayed due to market conditions and the global fallout from COVID-19. Alfred Sorensen, chief executive officer, said advancement work continues, “primarily with KBR to finalize a fixed-price contract to design and build” the plant. While FID cannot be made this fall, the company is “confident it will happen once conditions improve and we can better analyze the landscape,” Sorensen said in a statement (OGJ Online, Apr. 16, 2020). In April 2019, the company said it would make FID by midyear to begin construction before 2020.

Refining

While details are sparse thus far, companies are cutting budgets on the refining side as well, and some major project delays have been confirmed, while others are at risk.

Husky Energy Inc. reduced capital expenditures by an additional $700 million and shut in negative cash margin production in continued efforts to counter market conditions caused by COVID-19. The company suspended rebuild construction at its 47,500-b/d refinery in Superior, Wis., due to the COVID-19 pandemic. A fire broke out at the site in 2018, prompting the rebuild (OGJ Online, Apr. 26, 2018). Demolition of damaged equipment was largely completed as of September 2019. The refinery had been scheduled to return to full operations in 2021.

Valero Energy Corp. reduced crude oil processing activities and expects to delay previously anticipated capital expenditures planned in 2020 for its refining and ethanol segments amid reduced demand for finished petroleum products as a result of the coronavirus outbreak.

Alongside deferring tax payments due in 2020 as well as securing a new $875-million, 364-day revolving credit agreement, the operator said it plans to defer or delay certain capital investments originally scheduled for 2020 related to its refining and ethanol businesses.

Valero did not specify which projects might be deferred or delayed, but major investments that had been planned for 2020 include:

• A $975-million project for a 55,000-b/d delayed coker and sulfur recovery unit scheduled for startup in 2022 at company’s 335,000-b/d refinery in Port Arthur, Tex.
• A $400-million project to add a 17,000-b/d alkylation unit for planned startup in fourth-quarter 2020 at the operator’s 215,000-b/d St. Charles refinery in Norco, La. (OGJ Online, Apr. 25, 2019).
• A $550-million project to add a second renewable diesel production train for commissioning in 2021 at the Valero-Darling Ingredients Inc. 50-50 joint venture Diamond Green Diesel Holdings LLC’s renewable diesel plant at Norco to expand production capacity to about 675 million gal/year from 275 million gal/year (OGJ Online, May 6, 2019).