Curtis Williams
HOUSTON (Reuters) – A shortage of skilled workers and rising wages are exacerbating inflation on the U.S. Gulf Coast, putting pressure on liquefied natural gas (LNG) developers and delaying financing approvals for some projects.
Five LNG plants are under development in Texas and Louisiana, and 16 more are planned across the U.S. as they seek investment and customers. Together, the five plants under construction would add an additional 86.6 million tonnes of super-chilled gas per year, enough to make the U.S. the world’s largest exporter for years to come.
The fate of early-stage projects has become uncertain as labor costs rise by up to 20% from 2021 onwards, collapsing construction budgets and squeezing projected revenues for companies trying to attract new investors.
Work on Golden Pass LNG, one of the largest projects in the U.S., has all but halted after the prime contractor filed for bankruptcy after running up $2.4 billion over budget. Sempra LNG is reconsidering its selection of Bechtel to build the Cameron LNG expansion project in an effort to cut costs, and has reduced its stake in Port Arthur LNG, a project in Texas, due to rising construction costs.
NextDecade, which is building the first phase of the $18 billion Rio Grande LNG export terminal, has brought in new investors and reduced original investors’ stakes to get the go-ahead after rising engineering, procurement and construction (EPC) costs, analysts said.
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The woes come as costs have skyrocketed since the coronavirus pandemic hit. Contractors have had to raise wages for skilled workers by as much as 20% over three years and in some cases pay them per diem to keep them, said Travis Woods, president of Gulf Coast Industrial Group, which represents more than 1,500 contractors in Texas and Louisiana.
“Welders, plumbers, electricians are definitely demanding higher wages to keep their jobs. In some cases, everyone working on a project is being paid a per diem, regardless of where they live,” Woods said.
The five plants employed more than 20,000 people before Golden Pass LNG’s prime contractor, Zakry, sent 4,000 workers home, according to regulatory filings and company statements from the companies over the past three months.
A spokesman for Venture Global LNG, which is helping Zachry build the Plaquemines LNG plant in Louisiana, said the project’s modularization “has insulated us from the significant labor and inflation issues that have affected other projects.”
In Louisiana, where many of the nation’s new factories are being built, construction workers in the oil and gas pipeline sector are expected to earn 19% more in 2023 than they did in 2022, according to data from the U.S. Bureau of Labor Statistics.
“Welders and pipefitters will be offered up to $60 an hour plus a signing bonus if they agree to stay until completion,” Woods added.
EPC contracts for new LNG plants are expected to grow by 18% to 25% between 2021 and 2023, according to data from LNG research and consulting firm Rapidan Energy Group.
Bechtel Corp., the largest U.S. LNG plant contractor and Zachry’s rival, declined to comment on the situation.
The Reston, Virginia-based contractor is the preferred construction contractor for Cheniere Energy, the largest U.S. LNG exporter, and is delivering projects primarily using lump-sum, turnkey EPC contracts.
To mitigate risks, EPC contractors may consider reducing the scope of their contracts and making more elements reimbursable, according to LNG shipping and consulting firm Poten & Partners.
“EPC contractors may be starting to price in 30-40% increases into lump-sum contracts,” the company said in a note last month.
(Reporting by Curtis Williams in Houston; Editing by Josie Kao)