As the world plans to transition to a lower carbon future, significant capital investment ($243bn) is being spent in the planning and execution of major renewable energy projects across the globe in 2021. These capital investments are expected to increase further in upcoming years. As a result of these investments, the capital gap between high-spending upstream oil and gas sectors and renewable energy projects is narrowing.
The fossil fuel industry has had mixed experience in executing large Gas projects (e.g., LNG projects) within original approved budget. There are many projects that were executed with the time limit, benefitting the energy sector and associated consumers.
There are also many projects that could not meet the deadlines, resulting in increase of associated costs. A major Liquefied Natural Gas (LNG) project in Australia could not meet the time deadline due to delays in module deliveries for the project, resulting in a $5 billion cost overrun from the project’s original estimate in 2011.Also, a Gas to Liquids (GTL) project in sub-Saharan Africa missed cost and schedule deadlines. The project’s initial cost estimate was revised twice and eventually reached $10 billion, up from $1.7 billion, due to increased costs and execution delays. Similarly, there are many projects related to fossil fuels and LNG in the US and around the world that could not meet the project deadlines, leading to significant increase in the cost of the capital investments and losses due to delayed startup of the project.
Why we need to learn from these fossil fuel projects?
As the world rapidly executes the renewable energy projects, the need to seek and implement valuable lessons from the fossil fuel industry to make sure that the renewable projects could be completed with the approved budget and time cannot be overemphasized. The renewable energy resources i.e., wind, water, and solar are expected to replace 80 to 85 percent of present energy between 2030 and2050 to meet carbon emissions reduction targets to avert the worst effects of global warming.
The execution and startup of recent global LNG projects gives us very good lessons or ideas to understand areas of focus that impact on project cost and schedule performance. Project management teams tasked with planning and executing renewable energy projects should seek these lessons to ensure the timely delivery of project deliverables to meet the energy transition milestones.
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The following are some lessons learned in the execution of major fossil fuels and LNG projects.
Guard against late design changes
•The project management team must ensure that due diligence is given to estimate the duration required for completing the front-end engineering design (FEED) incorporating all owner requirements. Moving too quickly to bid for detailed engineering and fabrication on incomplete FEED will result to costly variations on lump sum EPC contracts.
Preservation of long lead procured items
•For large projects, procurement orders for major electrical/electronic and mechanical equipment will need to be placed years ahead of delivery date due to lead time for design and manufacturing. The project team must plan for preservation of these items upon delivery to project location. Failure to do this will lead to costly delays associated with repair and in some cases ordering replacement items.
Manage personnel turnover
•Turnover in human resources refers to the act of replacing an employee with a new employee. During the execution of projects, the employees or personnel leaves the organizations or project due to number of reasons. The project manager must ensure that a plan is in place for off boarding exiting personnel and onboarding new project team members. Cloud based Project information management IT systems should be used to store project documents with personnel access managed accordingly.
Effective logistics planning
•The post Covid-19 pandemic economic recovery has resulted in a global supply chain disruption. Project procurement management plans and contract agreements must be robust to mitigate the risks of delays in delivery time of procured items. Especially for large projects, coordination at a global scale will be required to move equipment and materials from fabrication yards or manufacturing location to project site for installation. Early engagement of multiple stakeholders such as shippers, government agents, city officials, community, security agencies will be required.
Proper Startup planning and handover to operations
•The project is not complete until it achieves the commissioning and startup milestone. Several LNG projects have failed to startup after construction activities were completed. One common theme is inadequate training of operations personnel and commissioning procedure. Failure to follow commissioning procedure by incompetent personnel can lead to startup incidents. Therefore, the project team should incorporate the cost and duration of hiring and training operations personnel who will run the completed facility to avoid costly delays during commissioning.
Conclusion
Capital investments in renewable energy projects are expected to grow even more in the coming years. As a result of these investments, there is an urgent need for time to implement the learned lessons from the fossil fuel industry, particularly the LNG sector, to ensure that renewable projects are completed within the approved budget and time frame to meet the energy transition milestones.
Daniel Alaigba is a versatile Facilities Engineer with over 13 years professional experience covering Project Construction Management, Operations Management, Business Planning and Business Analytics with one of the international oil and gas companies.
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