By Abboud Zahr
COUNTRIES which are established oil and gas producers are accustomed to developing new capacity, like refineries or LNG plants, either through the expansion of existing facilities or new construction in existing industrial complexes.
However, newcomers to the hydrocarbons industry in the world have to find totally new areas which are remote or not fully appropriate and suitably equipped to accommodate such big structures.
These areas are considered undeveloped in terms of basic transportation infrastructure, industrial infrastructure, and support services. For a mega project like a new LNG plant, the proposed Vasilikos site is considered underdeveloped and needs to be rehabilitated in order for the new construction project to be executed smoothly, on time, and within budget.
Any delay in the execution of such a project would mean hundreds of millions of euros in losses for the project owners and sponsors.
The site location lacks the basic infrastructure needed to construct and operate such a facility.
Existing roads, bridges, port facilities, and electric generation facilities are not sufficient to support the needs of the construction project or the follow-on operations.
Therefore, other facilities have to be constructed just to allow the construction of the project to begin. Stakeholders have to allow for significant time and expenditures for up-front development activities to design and build the basic transportation infrastructure and even living quarters for construction and operations personnel before any construction of the ‘’process’’ portions of the project can begin.
This means for example that a project that could be constructed in four years for €10 billion, could take up to six years and €11 billion.
Accordingly, when the owners and developers get their project underway in such an area, they will have to include in their planning the added time and cost to build the many facilities that will be needed to support the construction and operation of the plant, including separation tanks, pipelines, roads, receiving facilities, emergency (fire and health) facilities, and facilities for housing and subsistence of workers and their families.
These substantial investments will increase the cost per unit of output, as well as add to both the length and complexity of the projects.
Additionally, mobilising equipment, manpower, materials, and other requisite resources needed to build infrastructure projects in underdeveloped site locations can significantly increase the risk of budget overruns and considerably extend construction schedules.
The shortage of skilled local labour is of particular concern. A large skilled labour force is necessary to complete the project on time and with appropriate quality levels.
For recent similar projects constructed in Australia and Angola, the supply of skilled craft labour has been a challenge due to: limited existing personnel in remote areas; lack of interest in relocating to such areas; many projects competing for scarce resources; and/or restrictions on importing foreign labor.
By their very nature, LNG facilities require the design and construction of extensive marine facilities. This includes not only the loading terminal, but also the unloading areas to be used during construction as well as the need for the dredging harbors necessary for these activities.
And, it goes without saying that the construction of marine facilities is a very risky and potentially problematic undertaking, due to the general unpredictability of sea conditions.
Changes in tides, storms, and other unexpected underwater conditions are all major risks for marine projects to which many oil and gas owners are not accustomed. There have been substantial delays to the construction of projects in Australia and Latin America due to such conditions.
Taking into consideration all the reasons mentioned above, the site preparation works have to start well in advance, as it will take two to three years to plan and execute these preliminary works and only when these are finished can the construction work of the plant really start.
These works will not be done by the project developers but by the local authorities, which will plan them (in coordination with the project developers), execute them and finance them.
Abboud Zahr is an oil and gas specialist