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INTERVIEW: Purav Shah, Director, project Execution, Cheniere

INTERVIEW: Purav Shah, Director, project Execution, Cheniere

DISCLAIMER: These are Purav Shah’s own views, and not necessarily Cheniere’s.

Q: Can you tell us a bit about yourself, your role and your company?

A: I've been working in the energy industry for about 20 years now. I am a Project director with Cheniere overseeing the Engineering and Construction of Corpus Christi Liquefaction Stage Three, which is a seven-train, 10.5-million-ton expansion at Corpus. I've been with Cheniere for the last 10 years. Cheniere is a great company. It was building the first LNG train when I joined and now we have six at Sabine Pass and three at Corpus Christi, so overall we have 45 mtpa and large expansion projects in the pipeline. We are the biggest exporter out of LNG from the US, and have one of the best operational and safety records in the industry. It's quite an achievement for the company to scale up to where we are today and still maintain that operational and safety record within the industry. It’s wonderful company to work for. As far as my role is concerned, I work in the engineering and construction team. I oversee major execution projects, projects that are post-FID. Along with CCL Stage 3, I'm also overseeing adding two more midscale trains with the Corpus Christi Trains 8 and 9 project. So, my team and I, we focus on the execution of these projects.

 

Q: Are these the main projects you are currently working on?

A: Yes, those currently are the primary two.

 

Q: What do you think are the major challenges that are currently impacting successful project execution for major LNG export projects in North America?

A: There are several challenges right now, and I'll focus on the major ones. The biggest one that contractors have seen is attracting good, skilled labor. LNG projects are long projects – they take 4-6 years and because these are large projects, they require thousands of people over that length of time and these need to be skilled craft professionals. It has been very challenging to attract good craft people with simultaneous FIDs, multiple competitors – and not just in LNG. It's the same craft working on other non-LNG projects as well. Even within oil and gas, you have chemicals and other large projects going on and then there is also competition from the tech sector building facilities like the data centers – it's the same kind of craft that's needed there as well. So, it's hard to attract and keep this craft with us for this period. And then supply chain has also been an issue – procurement, lead times have crept up quite a bit from the first project that we were working on to where we are today, especially on some of these key components that are shared by these other non-LNG projects like data centers. For example, power substation components and cables have long lead times and so procuring them in a timely fashion to keep your schedule is a major challenge.

 

Q: The current wave of LNG project development has seen a rapid acceleration of project costs, with some estimates suggesting a near 40% increase in the last five years. What are some of the ways in which project developers can help mitigate these challenges?

A: There are several ways. I'll list them out in a few points. The first thing is extreme planning. You have to plan the project so your FEED design is solid. You cannot afford to make any major changes during execution, and that has always been the case, but now with this increased cost, that is one of the major factors that can severely impact how your project is delivered both on cost and schedule. Optimizing the use of existing infrastructure when you're planning your facility – it's all about dollar per ton. So, how do you bring the dollars down and increase production? With the same facility you plan it in a way where minor additional dollars could have a larger impact on your production and basically keep the dollar-per-ton ratio as low as possible. The focus needs to be on the cost, but also on production. You could still add a few more dollars if you can get a significant improvement in your production. Then the overall dollar-per-ton rate comes down. So, extreme planning is required. Still on the planning side, when you're in the execution phase, you have to focus on how you selectively modularize, send some of the work elsewhere. What do you do with the utilities? Do you self-generate or do you procure it? Depending upon where your location is, what's the availability of power? These things need to be planned extensively before you decide on where you’re building this and how much you’re building. So that's one thing. The other thing is you have to adopt new technologies. Traditionally, oil and gas has been slow in adopting new technologies. And replication of existing facilities has its benefit, it has a major impact on improving cost. But, selectively adopting new technologies can help reduce cost and increase production. Of course, it needs to be selective, because if you get away from replication too much, then you are now compromising on that cost, so it's a balance. And then there is extreme discipline. We have to be very prudent on how the money is spent, so during execution, any change needs to be thoroughly evaluated against benefit to safety or operational production. And if it's just a good-to-have, then that is being looked at more closely than it used to be in the past. There are also other innovative ways – like risk-sharing with the contractors – that we are seeing these days. As operators, we share some of the risk with the contractors. What that does is it reduces the contingencies that the contractors require. But again, the operators have to plan and be very disciplined so that these risks actually don't occur on the project. Otherwise, there’s no point – you're going to lose more money that way. But that is being explored as well these days. And then the permitting timelines have increased quite a bit, so what do you do during that time? That has another impact on your dollars. So, if you selectively do some E&P work, that can help lower the impact of inflation over the years and also secure space and suppliers at their factories. And then when the project is fully permitted and FIDs, you avoid the cost of any escalations around those aspects.

 

Q: How do you see the expected renewed project boom in 2025 impacting on costs?

A: It's hard to tell how many of these projects will actually FID. There are a lot of projects in the pipeline that are being planned, but there is also a lot that goes into an FID – whether it's securing contracts, financing, permitting, everything else. So, it's hard to tell how many will actually FID, and it also depends on how the competition evolves. Will we continue to face the same competition from these other non-LNG projects and tech sector and others? Also, commodity pricing and inflation may or may not hold. We don't know. But I think what we do know is that if the operators are prudent and they plan to execute these projects well, then the impact of these increased costs can be mitigated.

 

Q: When planning a new facility, developers are faced with an overwhelming array of choices when it comes to the size, planning, layout, design and execution of their project. In your experience, what are the critical factors to consider when developing your strategy?

A: There are a lot. First is obviously the location – where am I going to build? One of the biggest cost impacts to any project is site works. How much site work do you have to do to improve the site? What's the availability of the gas in that area? How much pipeline are you going to have to build to operate this facility? Where in that area can you get power – because these facilities require a lot of power – are the utilities available in that area? What's the ship traffic like? And what are the future expansion options? Because once you get started, your lowest dollar per ton is going to come from expansion projects. That's where companies like Cheniere benefit the most because greenfield is quite expensive, and so if you plan it where you can keep expanding in that area, that will give you the best dollar-per-ton rate. Then, also, how close are the neighbors? When Cheniere built the first train, regulations were a little different. Over time, they have evolved, and regulators have changed some of the requirements, so you have to be careful and take that into account. As far as the size of the project is concerned, there's always a debate between mid-scale and large-scale trains. They both have their pros and cons, so you have to select the technology. Now, are you building brownfield, and do you want to stick with your technology, keep the synergies? Take that into account. But if it's greenfield, then what's the technology that works best for you and your contractor? Because the contractor needs to have experience in constructing the technology. So, have you decided on which contractor you're going to use and what their experience is building that? And then you have to decide the full build-out, even though you don't FID the whole project going in. You have to have a vision of what you want – what is the end goal? Are you going to build a 30 mtpa facility over time, even if you're going to FID 7 mtpa now? That has a big impact on selecting the technology and then on how you build infrastructure around that. Then there’s also layout, and layout has its own things you need to look at – wind directions, neighbors, you have take into account all the regulatory requirements. There's a lot of focus on offsite impacts from the regulators, so you have to take that into account in your layouts and future expandability, like I said. You don't want to just to save a few dollars – you don't want to compromise on future expandability.

 

Q: How have you seen approaches to project development change over the last five years? What do you expect to see over the next five years?

A: Over the last five years, the risk appetite of the contractors has come down. It has always been low, but it has come down quite a bit. The Industry has seen contractors going bankrupt. We have seen contractor and operators filing lawsuits against each other. There is also this inflationary shock post-COVID, which has not helped the risk appetite. So, I do see operators that have, over the last five years, taken over some of the responsibilities, some of the risks that typically are borne by the contractor. The operators have been willing to look into that. This is also to reduce cost, by taking over some of this stuff, and it also helps make it attractive for the contractor. And I see that going forward as well – you will see a lot of hybrid contracts. People have lump sum contracts, reimbursable contracts but I do see a lot of hybrids coming in, where certain parts are lump sum, certain parts are reimbursable. I see a lot of hybrid construction strategies. It used to be that either you're doing stick-built or modular, but I see a lot of hybrids going forward, like where the port is stick-built, but yet big portions of that are being done overseas. And then the same thing with hybrid scope execution, like where operators will carve out scopes and give it to either multiple contractors or self execute, I see that continuing, because that's where I think it benefits the operator as well as the contractor. Then there is new technology adoption. I think, as prices have increased so much, there's a lot of focus now on how we can adopt these new technologies without really impacting the project spending negatively – whether it's operator experience or whether there is risk associated with these new technologies – and yet get the benefit out of them, like AI.

 

Q: What do you see as the key pillars to successful project execution, beyond what you’ve mentioned already?

A: It's the people and team – the leadership, the collaboration and the experience. These facilities are large, so while you're executing them, any major surprises cost a lot of money. It can make or break the project. When you have an experienced team with good leadership, you can avoid major pitfalls, so that's the key. There's also this contractor-operator relationship, because the projects that have not been successful, you look at them and it's mostly because the contractor and the operator either didn't get along for whatever reason, didn't see eye to eye, the operator wasn't fair to the contractor or the contractor didn't do their job as planned. So, there's a lot of collaboration and good relationship needed. Again, that is one of those things that you don't see in the front end and in terms of dollars, but it has a major impact on the dollars that you end up spending on a project. So, the contractor-operator relationship is very important. There's always extensive planning, like I said earlier, which is required to minimize surprises. And then there’s safety and quality culture. With these new people that you have to bring in – because it's hard to find craft people, so there are people who have never worked in our industry before, or they come from an industry that has a different safety and quality culture, which is not acceptable to us. So, to train your people to incorporate the same safety values in their day-to-day is of prime importance, because that safety has a direct impact on your quality, which in turn has a direct impact on the outcome of your project in terms of dollars. And then lessons learned – I think that is another key. So, again, I'd say the same thing – that's where people who have been operating these facilities benefit the most, and having an experienced contractor, because they have learned over time so they can avoid those pitfalls. Having an experienced group who has been there and done that is important for large projects.

 

Q: You’ve talked about how much of a constraint workforce shortages are likely to be. What else can be done to address this beyond what you’ve already touched on?

A: I would say it will continue. Like I said, you have to look at selective modularization. That’s always there when you try to reduce the demand on workforce at your site. You have to incorporate some smart incentive schemes, where they stick with you over the length of the project, and make that attractive for them. And then I think the other key aspect that we don't focus on a lot is for the contractor – it needs to be the contractor of choice for these craft. They have choice of several contractors to work for, so you have to show you are the contractor of choice. How do you do that? Other than dollars, which everybody can give, you increase your focus on things like safety, onsite facilities and ease of site-access, traffic, things like that, which is very important for these workforces. They don't translate into dollars directly. But when they know that the safety culture is good, that they can go back to their families and be safe after finishing their day's work, that really makes you the contractor of choice, and then they will stick with you for a long time.

 

If you'd like to hear more from Purav, he will be joining a panel on our LNG Export engineering & construction track discussing how to 'Assess, Select and Implement the Best Design & Execution Strategy for your Facility'  (June 11 - 12, GRB Houston, Tx). Joining Purav will be senior project leaders from Petronas and Bron & Claude.

 

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