Freeport Lawsuit Highlights US LNG’s Cost, Labor Woes

Legal woes continue to pile up for US LNG project developers and contractors as the sector continues to deal with rising costs and limited labor. In the latest setback, Freeport LNG has sued its engineering, procurement and construction (EPC) contractors over what it says were mechanical defects that caused operations to shut down earlier this year. The suit against the consortium of Zachry Industrial, Chiyoda and McDermott -- the same EPC partners hired to build the nearby Golden Pass LNG terminal -- claims the defects resulted in major damage to key equipment and substantial repair costs.

The revelation follows news that Zachry is seeking to extricate itself from the QatarEnergy/Exxon Mobil-led Golden Pass project as part of its bankruptcy filing [1], in which Zachry blames the project developers for its financial problems. These compounding events have occurred against the backdrop of Venture Global's ongoing dispute with customers [2] over the lengthy commissioning phase for its Calcasieu Pass facility in Louisiana. At the heart of that dispute are reliability issues around the heat recovery steam generators, repairs to which have been ongoing.

For some market watchers, these legal issues around cost and reliability show an industry grappling with a small pool of skilled labor that is being stretched ever thinner as more projects, LNG and otherwise, ramp up. "This is the No.

1 concern for EPC players, for project owners, developers, operators ... and they are fighting," Mehdy Touil, an LNG operations specialist at Vancouver-based engineering firm Solaris MCI, told Energy Intelligence. "There is no consensus between them to try to establish an agreement about sharing resources, especially in the most crowded areas." 'Workmanship Issues'

The dispute with contractors follows a string of operational issues at Freeport over the past two years. Because the facility comprises 16.5% of US LNG export capacity, or 15 million tons per year (2.1 billion cubic feet per day), any outages or potential outages have an outsized impact on a sensitive gas market.[3] In its lawsuit, filed in Harris County District Court in Houston, Freeport said an electric motor at the facility's third liquefaction unit (known as Train 3) failed in January when loose hardware within the motor dislodged from its protective panel, getting caught in the windings and causing a short.

Two other motors on the same train had similar defects, and Freeport also found all three motors needed repairs for cable sheath and insulation damage. Privately held Freeport is the first US facility to use General Electric's massive 75 watt electric motor drives in pursuit of less carbon-intensive LNG, raising questions for the nascent technology. Because Freeport's other two trains also uses these motors, Freeport stepped up monitoring at those units following the repairs at Train 3.

When one of the motors at Train 2 started showing signs of "current abnormalities" and excess partial discharge, it was taken off line for further inspection. Freeport found "additional workmanship issues, even more so than the ones found in the inspection of the Train 3 motors," according to the suit. Namely, all six bolt assemblies had dislodged from their protective panels, which was itself partially separated because one of its two-foot-long bolt assemblies had dislodged from the underside of the panel.

The assembly "appears to have dropped into the rotor portion of the motor and sheared into numerous smaller pieces (which caused additional damage to the motor internals)," according to the suit. Following the findings, Freeport then took its final remaining running liquefaction unit, Train 1, off line as a precaution. Freeport says the findings show the EPC consortium was in breach of contract and warranty obligations and is seeking at least £1 million in monetary relief.

The EPC partners have until October to answer, according to court documents.

References

^ bankruptcy filing (www.energyintel.com)
^ ongoing dispute with customers (www.energyintel.com)
^ sensitive gas market. (www.energyintel.com)