Venture Global LNG: Costs Ramping At Calcasieu?

Headcount, Parking Data Suggest Material EPC Inflation

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• Construction Details:                                                           Pages 1-2
• Parking & Headcount estimates                                        Pages 2-3
• Previous CPLNG Cost Curve                                               Page 3
• Our New CPLNG Labor Cost Estimates                           Page 3 
• EPC Costs – Expanded                                                         Page 4
• Key Questions From Here                                                   Pages 4-5

Forcasted Ramp In Craft Labor Headcount Indicate Costs Likely Trending Above Plan. Recent filings indicate that Calcasieu Pass LNG’s (CPLNG) average on-site workforce is set to more than double compared to company Pre-FID plans, while also introducing a night-shift. While there are likely several variables in play here, we believe the data (analyzed in the pages that follow), suggests that CPLNG’s on-site craft labor costs could increase materially……(data and our estimates on pages 2-5).

Parking Lot Infrastructure: In addition to the craft labor increases, there’s usually an increase in both indirect construction support infrastructure and the associated cost for that infrastructure. An example of this phenomenon is the reported increases by CPLNG in parking lot infrastructure. While not usually top-of-mind, ancillary factors like parking carry a real cost for projects this large, and significant increase in parking requirements would be felt in a projects budget. This same correlation is true for other indirect costs like lunch tents, lavatories, office spaces, personal protective equipment, health & safety supervision, small tools and consumables, radios and other IT equipment, trash removal, security, craft training, and on and on. That trend in data over the past year shows….(continued on pages 2-3).

While there could be several explanations for the ramp in labor (too many to list within a single note), if we were stakeholders we’d want to understand what’s actually driving the ramp in labor, and how any associated overrun in direct and indirect costs are being accounted for by CPLNG. While our cost overrun estimate (pages 2-3) is just that – an estimate – we’re confident the
fundamental relationship between labor head count and project costs have us pointed in the right direction.
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LNG Update: Frozen 3? Funding Hot Potato For Novatek’s Arctic 2

Keeping An Eye On Budgeting Process For Arctic 2

Who Picks Up The Check For Arctic 2? The timeline for Novatek’s high-profile Arctic LNG 2 (19.8mpta) may have hit a modest speedbump, as the ~$1.9BN request to help finance critical aspects of Arctic 2 [the Utrenneye LNG terminal on Gydan peninsula (page 4), and reloading terminals in Murmansk (for European cargoes) and Kamchatka (for Asia cargoes)] are absent from Russia’s 2020 draft budget. While the project has already reached a positive FID, and is clearly a national priority – we think it’s worth watching whether any squabble over the ultimate funding source ends up delaying its operational timeline (which is already ambitious). The primary options appeared to be (1) the state budget (now absent), or (2) funding from the ~$124B National Wealth Fund, which appears to be a more complicated….

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Webber R|A Call Series: EPC Risks – KMI’s New Elba Island LNG Timeline Likely Slips Materially

Highlights From Webber R|A Conference Call Series W/ EPC Risks CEO, Eric Smith

Diving Into EPC Risk:

Friday we hosted Eric Smith, CEO of EPC Risks for our inaugural Webber R|A LNG Conference Call Series – which we think was particularly timely as the market gradually shifts more of its focus from the binary event-risk (FID risk) that has largely defined the LNG cycle for the past 2 years, and toward LNG project construction/execution risks (EPC risks). Our call with EPC Risks CEO Eric Smith focused on the issues they’re seeing in certain timelines over the near-term (KMI’s Elba Island), the impact that restructuring headwinds (McDermott) can have on project timelines (Cameron LNG/SRE), and the viability of low-cost models like Venture Global’s Calcasieu Pass.

Among the major takeaways:

according to EPC Risks, there’s a zero percent (0%) chance that KMI hit’s the Elba Island timeline they highlighted on their earnings call last week (i.e. – 3 more units in place this year, remaining 6 within H210).

Relevant Companies/Stocks:

Kinder Morgan (KMI), Sempra LNG (SRE), Cheniere (LNG, CQP), Tellurian (TELL), NextDecade (NEXT), McDermott (MDR), LNG Limited (LNGL), Energy Transfer (ETE), Royal Dutch Shell (RDS.A, RDS.B), Baker Hughes (BKR), Fluor (FLR), Chiyoda (6366), IHI (7013), Venture Global LNG (Private), Bechtel (Private).