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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LNG Canada Update: Trouble Ahead For Shell’s LNG Flagship?

An Empty Module Yard & Mounting Schedule Delays

• Key Takeaways (pages 1, 5)
• Estimated LNG Canada Schedule Shifts (page 2-3)
• Satellite Image Review: COOEC Fluor Module Yard Layout (May 17, 2020) (page 4)
• Satellite Image Review: Module Layout Descriptions (page 5)
• Satellite Image Review: CFHI Module Yard Pre-Assembly Areas (page 6)
• Long-Term Thoughts & Key Questions (page 7)

Key Highlights:
• Still Moving At A Crawl. As of May, module fabrication was ~2% complete, well behind our ~11% estimate in W|EPC’s February 2020 (pre-COVID 19) schedule…
• Satellite Image Review: The COOEC-Fluor Heavy Industries (CFHI) module yard pre-assembly areas look…
• Playing Catch Up Won’t Be Cheap. The schedule slip should put even more pressure on the back-end of LNG Canada’s timeline…continued…

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EPC Risks: Energy Transfer (ET) Capital Project Monitor – Q220

W|EPC: Energy Transfer (ET) Capital Project Monitor – Q220

• Energy Transfer (ET) Q220 Capital Project Monitor: Key Takeaways (slide 2)
• Energy Transfer Capital Budget Overview (slide 3)
• Energy Transfer: NGL Fractionation History (slide 5)
• Tale of the Tape: ETvs. EPD (slide 6)
• Mariner East 2X (slide 8)
• Orbit Ethane Export Terminal(slide 9)
• Lone Star Express Pipeline (slide 11)
• Lake Charles LNG: Fighting Yesterday’s War? (slides 13-20)

Key Takeaways:
1. Does ET’s Frac 8 Have a Cost Advantage over EPD’s Frac 12?
2. Energy Transfer’s NGL BPD Frac Costs Keep Falling
3. Budget Cuts, COVID-19 Impact, & Schedule Delays
4. Lake Charles LNG – Fighting Yesterday’s War?

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Exxon, Qatar & Golden Pass: Something’s Gotta Give

Analyzing Project Costs & Logistics In The COVID Era
(Part 1 of 2 – Satellite Image Analysis Later This Week)

• Golden Pass: 4 Key Takeaways……………………………………Page 2
• EPC: Monthly Progress Evolution……………………………….. Page 3
• April 2020 Project Update…………………………………………Page 4
  • IP & Construction Activity ……………………………………Page 5
  • Labor Logistics In The COVID Era ………………………….Page 6
  • Cost Analysis – Significant Overruns Already?……………Page 8
  • COVID-19 Impact …………………………………………….Page 9
• December 2019 Baseline
  • Partner Organization, Key Participants ……………………Page 10
  • EPC Roles: MDR, Zachry, Chiyoda …………………………Page 12
  • Variance Analysis …………………………………………….Page 14

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Key Takeaways:

1) What’s Eating Golden Pass? QP & XOM Get Squirrelly In Press. On April 6th, the NYT ran an exclusive quoting Saad al-Kaabi (former QP CEO & current Qatar Energy Minister) as saying Golden Pass (GPX) was proceeding and on schedule. However, that was quickly followed by QP’s 30% partner Exxon (XOM) cutting $11B of 2020 CAPEX, delaying FID for Rovuma LNG (Mozambique), reiterating Coral LNG’s development, while ignoring GPX altogether. Since then, the NYT took down the article, energy markets are upside down, & questions mount. Based on actual EPC progress, we believe the reaffirmed GPX schedule falls somewhere between…..continued (Pages 2-3)
2) Is Golden Pass In Trouble? Monthly Progress Analysis. We believe GPX’s engineering has remained well behind schedule. Data suggests GPX has been attempting (unsuccessfully) to ramp labor earlier than planned…continued (Pages 9 & 13-14)
3) Labor Logistics In The COVID Era…On 4/17/20, GPX requested additional on-site parking amid challenges with safely busing craft workers to the site amid a global pandemic, however busing craft workers wasn’t supposed to begin for another year (2021). This minor, intuitive disclosure actually offers a few significant read-throughs for the project, as well as its path moving forward…continued (Pages 6-8)
4) Cost Overruns Poised To Accelerate From Here? Over the next 6 months we believe the project is already looking at construction cost overruns (relative to its baseline schedule) of at least…continued (Page 7)

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W|EPC: Force Majeure & The LNG Supply Chain: Scenarios For BH, Kiewit, & Venture Global

Reviewing Satellite Images Of Italian Fabrication Yards & Force Majeure Flow Charts

• Supply Chain Overview                                                                                    Pages 1-2
• Satellite Images: BH’s Fabrication Yard In Avenza, Italy                              Pages 2-4
• Implications Of Calcasieu’s Unique Contractual/Structural Dynamics     Pages 3-5
• Force Majeure Flow Charts: Wrapped vs Unwrapped                                Pages 4-5
• Pertinent Questions From Here                                                                       Pages 5-6

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The LNG Supply Chain & Force Majeure Dominoes. Given the continued, rolling implications of the global response to COVID-19, we thought it was worthwhile to examine potential points of friction as it pertains to the implications of Force Majeure (FM) declarations on large-scale, multi-faceted LNG export projects. We believe such a scenario is relevant for Venture Global’s Calcasieu Pass (CPLNG) project given its globally linked supply chain – including its liquefaction modules which are being fabricated at a Baker Hughes (BH) fabrication facility in Avenza, Italy. (Satellite images on Pages 2-4)

Venture Global’s Potential FM Predicament Is Unique. A typical, fully wrapped, EPC contract would typically just keep an owner on the hook for extensions to a contractor’s guaranteed completion date. However, the less expensive, decentralized contracting structure that Venture Global has assembled for CPLNG could potentially expose the project to contractors looking to recover mitigation and prolongation costs. (Pages 2-4)

Implications Of FM Claim For BH, Kiewit, & VG. We believe work on CPLNG’s modules was still progressing last week (with non-essential personnel working from home), given the escalation in restrictions we believe those productivity dynamics are (justifiably) fluid. Should BH file a successful FM claim, it would most likely be granted… (Pages 3-6)

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LNG Canada Update: Shell, Fluor, JGC, & Force Majeure

• **March 18 Update………………………………….Page 2
• Executive Summary…………………………………Page 3
• COVID-19 Impact……………………………………Page 4
• EPC Schedule Analysis……………………………..Page 5
• Site Labor Analysis 6………………………………..Page 6
• Site Labor EPC Cost Impact……………………….Page 7
• Conclusions…………………………………………..Page 8

Update: In light of yesterday’s announcement that the Shell-led LNG Canada project was cutting its staffing levels in half over the coming days, we felt it worthwhile to pass along our LNG Canada Update from late February, along with a slide on our updated thoughts. (Page 2)

COVID-19 Impact Updates
1. The World Health Organization (WHO) officially declared COVID-19 a pandemic on 11-Mar-20.
a. JFJV may have a stronger FM claim now that WHO has declared the COVID-19 a pandemic, to the extent that JFJV specifically has “pandemic” or “epidemic” listed as an FM event in their contract.
b. FM Impact of Chinese module fabrication yards…….Page 4

2. On 17-Mar, LNG Canada and JFJV both announced that JFJV’s on-site workforce in Kitimat would be halved in order to increase social distancing and help prevent the spread of COVID-19. Given that the announcement was made jointly between JFJV and LNG Canada – impact on FM/schedule relief.…..Page 5

3.While JFJV did not announce when the site at Kitimat would resume a full workforce, it took “several” weeks for workers to return to JFJV’s Chinese fabrication yards…..Page 5

LNG Canada Planned Vs Foretasted Progress – Where Were We In February, and Where Are We Heading Now?…..Pages 5-8

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