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Pipeline for LNG Canada hits pandemic speedbump

Finishing the $17 billion LNG Canada plant in Kitimat and the associated $6.6 billion Coastal GasLink pipeline on time and on budget promises to be one of the challenges facing LNG Canada’s new CEO, Peter Zebedee, thanks to the COVID-19 pandemic.
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LNG Canada CEO Peter Zebedee 'disappointed' by TC Energy's warning of cost increases on pipeline.

Finishing the $17 billion LNG Canada plant in Kitimat and the associated $6.6 billion Coastal GasLink pipeline on time and on budget promises to be one of the challenges facing LNG Canada’s new CEO, Peter Zebedee, thanks to the COVID-19 pandemic.

In July 2019, Zebedee took over from Andy Calitz, the Royal Dutch Shell executive who had been seconded to shepherd the LNG Canada project to the starting line. It is Zebedee’s job to get the project across the finish line.

Like so many projects and businesses, the project hit a speed bump in 2020, thanks to the COVID-19 pandemic. Public health restrictions on workplaces resulted in both the LNG construction project in Kitimat and the Coastal GasLink pipeline having to temporarily shrink their work forces.

In an interview with BIV News, Zebedee said LNG Canada and its engineering, procurement and construction contractor, JGC Fluor, are managing the interruption for the LNG project in Kitimat.

“We work really hard to offset the impacts of COVID, both in terms of costs and schedule, along with our EPC contractor JGC Fluor,” Zebedee said. “ At this point in time, I’d say we are a single digit percentage point behind.

“We continue to hit key construction milestones, despite the unforeseen challenges that we’ve seen coming out of COVID,” he said. “We are currently sitting at about 1,200 people on site. We’ve had to manage that through the provincial health orders and we’ll be ramping up to about 3,000 workers by the end of the first quarter.”

But the associated Coastal GasLink pipeline project, which will supply LNG Canada with natural gas, may face delays and cost increases.

There are basically three components to the $40 billion LNG project. The Kitimat LNG facility was estimated to cost $17 billion to $18 billion, and CGL was estimated to cost $6.6 billion. The balance represents upstream investments in natural gas wells, processing plants and other infrastructure.

In its most recent fourth quarter financials, TC Energy (TSX:TRP), which is building the CGL pipeline, warned the project is likely to suffer delays and “significant” cost increases.

“We expect that project costs will increase significantly and the schedule will be delayed compared to the previously disclosed estimate due to scope increases, permit delays and the impacts from COVID-19, including the provincial health order, although Coastal GasLink will continue to mitigate these impacts to the extent possible,” TC Energy said in its recent fourth quarter financials on February 18.

The company suggested that any increased costs would be passed along to the LNG Canada partners (Shell,Petronas, PetroChina, Mitsubishi and KOGAS) through tolls.

“Like any other relationship, sometimes you disagree on issues,” Zebedee said. “I must say, I was disappointed by…TC’s messaging last week.

“My expectation, and the expectation of our partners, is that they continue to progress the project on cost and schedule and ensure that the costs on the pipeline project are incurred in a reasonable and prudent manner. And that is the subject of an ongoing dialogue that we have with Coastal GasLink.”

As for the LNG project in Kitimat, milestones in 2020 included the opening of the Cedar Valley Lodge in Kitimat, which will house up to 4,500 workers. A large LNG storage tank is currently under construction.

LNG Canada had two outbreaks of COVID-19 among workers, in November and in December.

“Both were fully contained without any resultant spread into the community,” Zebedee said.

The company recently implemented a rapid testing process for all workers that come to the site.

In 2021, the company expects to start receiving the first of hundreds of modules being built in Asia.

“We expect to land our first module from overseas in Kitimat in the second half of this year,” Zebedee said.

To date, LNG Canada has awarded close to $3 billion worth of contracts to B.C. businesses, including First Nations contractors.