W|EPC: Gorgon LNG – Operational Breakdown Could Have Contributed To Kettle Cracks – Mid-October A More Likely Restart Timeline

W|EPC: Gorgon LNG – Operational Breakdown Could Have Contributed To Kettle Cracks
Mid-October May Be A More Likely Restart Timeline

Key Takeaways:

Pump The Brakes: While potential fabrication errors have been the primary narrative around the Propane Kettle cracks that shut down Gorgon LNG, it’s feasible that operational issues (and one in particular) may have contributed or even partially caused the cracks on Train-2’s kettles, which could have significant and more complex implications.

• The propane kettle cracks were noticed ~3-years after the kettles were placed in-service (likely beyond any warranty period), potentially shifting costs to Chevron.
• According to our in-house engineers, a breakdown in the propane vapor transfer step could subject the propane kettles to temperatures significantly below the minimum design metal temperature; creating stress on the metal and an optimum environment to cause cracks.
• If the root cause involved an operational issue, it would require not just replacement or repairs, but more robust inspections, testing, and training, which would add to the out-of-service timeline (below).
• If a breakdown in the propane vapor transfer step did contribute to the cracks, it would have likely needed to be repeated routinely to cause the visible cracks on Train-2, increasing the likelihood that such an error would have been repeated on Trains 1 and 3 as well, given the likelihood of crew rotation.

Timeline Implications

According to recent press reports, Chevron has suggested an early September restart for Train 2 and provided train 1 & 3 inspection time-frames.

• Train 2 – Currently Down since July, Online Sep 20
• Train 1 – Shutdown Early Oct 20, Online Nov 20 to Jan 21
• Train 3 – Shutdown Jan 21, Online Mar 21 to Apr 21
• We think mid-October for Train 2 may be more realistic. While the repairs themselves may fit within a mid-September target, we believe a thorough assessment of the route problems, inspections, training, etc., likely push out the downtime. We don’t know yet what approvals and 3rd party reviews will be necessary to confirm the repairs were made in a satisfactory way, but this could impact the timelines given as well. Continued…

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W|EPC: LNG Canada Q320 Monitor – Labor Dynamics & Baseline Satellite Image Review

LNG Canada Q320 Monitor – Labor Dynamics & Baseline Satellite Image Review

Shell • Petrochina • Mitsubishi • Kogas • Petronas

1) Union Craft Avg. Wage Rate Escalators & Impact On JGC/Fluor, and broader project cost…

What’s Happened/Changed: Part of our current focus is on LNG Canada’s wage rate escalation and union labor agreements post-2023.
Why Does That Matter: EPC lump sum proposals generally include labor escalation between 1-3% per annum (rates vary based on geography/availability). Labor agreements supporting LNG Canada and other B.C. projects expire in 2023 and have a relatively advantageous average labor escalation rate of…..continued.
For context, union labor strikes, renegotiated agreements, and significant wage rate escalation supported Gorgon LNG coming in $20B+ over budget. 
What’s The Impact:…..continued (Page 3)

2) Taking A Look At JFJV’s Longer-Term Labor Inflation Risk (Page 5)

3) JFJV’s Construction Activity – What does it tell us about the project timeline? (Page 8)

4) Satellite Image Analysis Baseline –  Benchmarks for Remainder of the Project…. (Pages 9-17)

W|EPC: LNG Canada Q320 Monitor – Labor Dynamics & Baseline Satellite Image Review

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W|EPC: Gorgon LNG’s Propane Kettle Cracks – Early Read

Overview:
On July 23, 2020, Reuters reported Australia’s Department of Mines, Industry Regulation & Safety (DMIRS) said “it plans to inspect Chevron’s Gorgon LNG plant as soon as possible following calls by a trade union to shut the plant.”
1. During routine maintenance, Chevron Australia discovered issues with the propane kettles on Train #2.
2. “The Australian Manufacturing Workers’ Union (AMWU) has called for Chevron to shut down the Gorgon plant for immediate safety inspections by a gov. regulator and for a report to be made public.”
3. Specifically, cracks up to 1 meter long and 30 millimeters deep were discovered by the non-destructive testing team (per AMWU). On July 28, 2020, a Chevron company spokesman said, “Chevron expected to restart Train #2 of its Gorgon LNG plant in early September after completing repairs.” Chevron said during routine maintenance that began on May 23rd and was scheduled to be completed by July 11, 2020, weld quality issues were discovered on 8 propane heat exchangers. Gorgon LNG Trains 1 & 3 are producing. On 07/29/20, inspectors from DMIRS were due on site to inspect the cracks after AMWUraised issues about the conditions of the South Korean-made kettles.

Key Takeaways:
• Inspectors from Western Australia’s “safety watchdog” were scheduled to inspect propane kettle cracks on Chevron’s Gorgon LNG Train-2 on 7/29
• Labor unions continue pushing back, requesting a full shut down of all three LNG trains for inspection.
• Publicly available technical details are limited, even for the folks who built Gorgon LNG (who we spoke with); however, we believe the 3-month estimated down time for repairs is….continued
• Primary rationale for a Train-1 and Train-3 inspection shut down would be…continued

W|EPC Thoughts & Observations
The publicly available technical details are limited, even for our contacts involved in building Gorgon LNG. However, we are watching the following:…continued

Concluding Thoughts…

Key Questions…

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