LNG Project in Texas Hits Snag as Owners Move to Terminate Contractor

A major liquefied natural gas (LNG) project on the Texas coast is facing a significant hurdle after its owners, QatarEnergy and Exxon Mobil, filed a court motion to remove the primary construction contractor. The $10 billion Golden Pass LNG project, a joint venture between the two energy giants, has been stalled by the bankruptcy of its lead contractor, Zachry Industrial.

Zachry, which held the lion's share of the engineering, procurement, and construction (EPC) contract for the project, filed for Chapter 11 bankruptcy in May, citing cost overruns it attributed to pandemic-related challenges and disagreements with the project owners over billing schedules and change orders. The company claimed the project cost had ballooned by $2. 4 billion, and it was unable to reach an agreement with QatarEnergy and Exxon on an amended contract.

In their court filing, QatarEnergy and Exxon allege that Zachry has "stopped performing its obligations" under the original EPC contract. They claim the contractor has laid off thousands of workers, halted payments to subcontractors, and essentially abandoned the project, which is currently around 75% complete. The owners are requesting the court to immediately terminate Zachry's contract or grant them full possession and control of the facility to allow construction to resume.

Zachry, however, maintains it is entitled to "fair and appropriate compensation" for its work on the project. The company argues that a "structured exit" from the project, as opposed to immediate termination, is the most likely outcome of the bankruptcy proceedings. Zachry also disputes the owners' claims regarding its performance, placing the blame for the project's difficulties on Golden Pass LNG's management.

The legal dispute between the project owners and Zachry throws the future of Golden Pass LNG into uncertainty. The project, expected to be one of the largest LNG export terminals in the United States, is seen as crucial for expanding America's natural gas export capacity. The impact of the contractor's removal and the potential delays it may cause remain to be seen.

Finding a replacement contractor for such a large-scale project at this stage could be a lengthy and expensive process. Additionally, the ongoing legal battle with Zachry could further complicate matters and lead to additional delays. The project's completion timeline and overall budget are likely to be significantly affected by the current situation.

The Golden Pass LNG saga highlights the challenges and risks associated with large-scale construction projects, particularly in the complex and ever-changing energy sector. The outcome of this dispute will be closely watched by industry players and stakeholders invested in the future of the American LNG market.

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