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Power Up: LNG's construction woes

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June 10 (Reuters) -By Liz Hampton

U.S. Energy Markets Editor

Welcome to Power Up. I'm Liz Hampton, the energy markets editor for Reuters and your Monday Power Up author. Today we're going to dive into some of the troubles facing a couple of new liquefied natural gas facilities in the United States – specifically construction of these massive plants. These facilities are a key component in both the U.S. and the global energy complex. Let's jump in. 

The liquefied natural gas industry is boomingin the United States, as the country has now become the largest exporter of LNG and a key supplier to Europe following Russia's invasion of Ukraine. U.S. LNG capacity is set to double to about 24.5 billion cubic feet per dayby the end of 2028, assuming all proposed projects are built.

These facilities are expected to stabilize U.S. natural gas markets, which have been under pressure amid swelling supply. But some of these new plants are facing troubles and disputeswith construction contractors, leading to delays and outages.

Last month, problems facing construction work at the Golden Pass LNG plant in Texas first came to light. This $11 billion joint venture between Exxon Mobil and QatarEnergy is among two plants whose startups were expected to boost global LNG supplies over the next 12 months.

The startup of the plant, which is 75% complete, has now been delayedby at least six months after one of its key contractors, Zachry Industrial, filed for bankruptcy. The first train at Golden Pass is now expectedto come online at the end of June 2025, and three other trains will start service between December 2025 and 2026.

Zachry Holdings filed for bankruptcy last month and has laid off thousands of workers. The contractor held the lion's share of workfor the LNG project but said it faced cost challenges over a change order and billings schedule. Other contractors on the project include Chiyoda International and McDermott.

A Zachry joint venture, along with KBR, is also contracted for construction of the Venture Global Plaquemines LNG export facility in Louisiana. That company said it does not expect any issues as a result of the bankruptcy.

The trio of engineering firms working on the Golden Pass plant were also contracted to build the Freeport LNG export facility, which, like Golden Pass, had originally been an import facility but was converted to an export plant. It started service in 2019. 

Those three firms are now facing a lawsuit from Freeport LNG over what the company alleges were quality control and workmanship issues at its Texas plant. 

Freeport LNG has been plagued with issues since a June 2022 fire broke out at the facility, knocking it offline for about eight months. The company settled with the U.S. Environmental Protection Agencyover safety violations related to that blast, which caused millions in damages at the plant. 

The facility, which is the first all-electric powered LNG plant in North America, faced several issues in the years that followed, but really saw a ramp up in incidents this year. It's tripped at least a dozen times, according to state filings.

The lawsuit, filed in a Texas district court in late April, says issues with construction - specifically the General Electric 75-megawatt motors installed on each train - were discovered after an upset in January. This included problems like nuts and bolts coming loose. Issues have been discovered at all three of the facility's trains. 

What happens next in this lawsuit, and for the Golden Pass LNG facility, remains to be seen. These massive projects are both costly and a critical piece of the global energy supply chain. We will be closely watching for new developments. Stay tuned.

Essential Reading:

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French energy firm TotalEnergies has signed a deal with U.S. firm Air Products and Chemicals for the delivery of green hydrogen. The 15-year agreement is for 70,000 tons of green hydrogen in Europe starting in 2030. 

U.S. shale producer Devon Energy has lost bids to acquire at least three of its peers in the last 12 months, missing out on a wave of mega-mergers sweeping the oil and gas industry, David French and Arathy Somasekhar report. The company struggled to book a deal as higher drilling costs and production issues made its stock less attractive to targets.

U.S. solar projects could see a boom as a two-year tariff holiday on panels from Southeast Asia expires, Nichola Groom reports. This will allow American project developers to use enormous amounts of equipment they stockpiled duty-free over that period by the end of this year. U.S. developers accumulated some 35 gigawatts of imported panels in warehouses since President Joe Biden lifted those duties. 

Element Fuels Holdings is hoping to build the first all-new U.S. oil refinery in 50 years, Arathy Somasekhar and Erwin Seba report. The Brownsville, Texas, project has been proposed twice and in its first phase would process about 50,000 to 55,000 bpd of naphtha feedstock into gasoline. 

We hope you're enjoying the Power Up newsletter. We'd love to hear your thoughts and feedback. You can reach us at: powerup@thomsonreuters.com. 

Editing by Lisa Shumaker


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