Paul has more than 50 years of experience in the engineering and construction industry including 30 years in C-level management positions. Before founding Commonwealth Projects in 2014, he was Founder and Chairman of Commonwealth Engineering and Construction, a project management company specializing in the design and construction of refining, LNG, chemical and gas processing projects.
He also served as Chairman and CEO of Sterling Construction Company, CEO of American Ref-Fuel Company, President of the Process Sector of Fluor Corporation and Monitor Trustee for the Federal Trade Commission overseeing the LNG tank business of CB&I.
Paul is a Registered Professional Engineer in Louisiana, Texas and California, and holds a Bachelor of Civil Engineering from Villanova University. He is also a graduate of Harvard Business School’s Advanced Management Program.
Could you share with us an update on the current status of your project and how are things are progressing/key milestones?
Commonwealth LNG is an 8.4 million tonnes per annum (mtpa) LNG liquefaction and export facility located on the west bank of the Calcasieu Ship Channel at the mouth of the Gulf of Mexico near Cameron, Louisiana. The facility will have six 50,000 M3 modular storage tanks and will be able to accommodate vessels up to 216,000 M3. Gas supply is achieved with the addition of a 3.0-mile pipeline interconnected to two major pipeline systems with significant excess transportation capacity.
On Sept 5, we announced SPAs with Woodside Energy, the SPAs are for the supply of up to 2.5 mtpa of LNG over 20 years from our export facility under development in Cameron Parish, Louisiana.
The U.S. Federal Energy Regulatory Commission (FERC) issued its Order Granting Authorization for our project in their November 17, 2022 meeting. The granting of this Order keeps us on a path for reaching Final Investment Decision (FID) in Q3 of 2023.
Commonwealth is unique in your heavy focus on a modular approach to construction. Can you share some of the key considerations you made in deciding to focus on a modular design and execution approach?
Like it or not, LNG is a commodity and commodities are driven by cost. In all major LNG projects, capex drives the largest cost item in the balance sheet which is debt service. So, if you can relentlessly control capex by doing everything possible technically, to create increased performance and improved economics, then you stand the best chance of offering your customer very attractive pricing for your product. We see this as the key to survival and what differentiates us from any others - particularly in comparison to stick build projects, I’ve built stick build projects for the past 50 years all over the world. Today it would be very difficult and expensive to find 8000 -10,000 craftsmen to bring to our site, given its remoteness which is 40 miles or more from major cities.
Modular, by comparison is less expensive and has less impact on the local community and infrastructure, so we are better neighbors to our friends who will be our neighbors for the next 20-30 years. The logic of modular is not just the speed and cost but also that we can run in parallel, building the site, grading, piling, fittings etc. while we are fabricating the modules.
Overall, we expect to save over 10-million- workhours by utilizing a modular approach, saving us a year in construction. What typically would take four years will now take three and will also provide us with improved quality and safety on the project.
In addition, a key advantage we have because of our modular approach and our lower capex per tonne model is our ability to amortize the debt over a period as short as 10 years, allowing us to offer customers long-term contracts of only 10 years and up to 20 years but also anything in between, which is highly attractive to them.
One of the keys to what we will have to do as suppliers is to be sensitive to the evolution of change in fuels as we look out toward 2050. We believe that by engaging customers in a 10-year agreement, they retain the ability to extend or roll over their contract or turn our gas on and off as required as they navigate the energy transition waves.
Many project developers are currently grappling with key challenges such as material cost inflation, supply chain and logistics challenges and construction labor shortages. Given your modular approach are these still a major issue for you? And if so how are you working to mitigate them?
Ultimately, we see these risks as transitory, with supply chains mainly disrupted from China. While we do see prices are still going up, we don’t see them going up as fast in Asia as in America. For us, close partnerships with our key vendors and suppliers are critical, allowing us to book long lead times on key materials early on in the project, which gives us greater control over pricing structures. Additionally, by working hard to lock in prices as soon as possible, it minimizes any risk associated with market fluctuations.
The shortage of skilled craft labor is a challenge which will continue to persist, and I expect to see more modular construction both in the US and abroad as a result. For example, we hope to do most of the work in the fab yards down to details like wiring in the modules. So, when the modules come in, they should literally be plug and play. From an engineer’s standpoint, the trains are identical to one another as are the tanks, allowing us to engineer it once and then build it six times. This saves us time, effort, and cost.
What key skill sets do you think are needed to be a successful project director?
First and foremost, it is essential to have a solid understanding of how things are actually put together in the field. This means having extensive experience with the actual work that goes into construction projects, including working with equipment and materials, understanding logistical challenges, and handling the myriad issues that can arise on-site.
In addition to strong technical skills, effective project directors also need strong planning, scheduling, and cost management skills. They must be able to accurately estimate what resources will be needed for a project and ensure that these resources are available when needed. Additionally, they must be able to accurately gauge how long a given project will take from start to finish in order to manage deadlines effectively. In short, they must know whether or not a particular project can be delivered on time and on budget.
Beyond having innate technical competence and hands-on experience, successful project directors also need to exhibit strong leadership qualities. This includes being able to communicate clearly with team members as well as having a firm grasp of group dynamics so as to manage groups efficiently without micromanaging their teams' progress. Finally, good leaders always accept responsibility for their actions (and mistakes) while sharing credit for their team's successes equally among all members of the team. In this way, effective project directors successfully navigate the complicated terrain of managing multiple variables simultaneously while ensuring that projects run smoothly from start to finish.
From an execution perspective its essential they plan in advance, stick with what they’re going to build, keep their design simple, and make their modules simple to operate.
How important is it to build a relationship with your EPC contractor? And what are the key factors you see to working successfully with them?
When looking for an EPC contractor to help with a major project, there are several key factors that you should take into consideration. One of the most important things to consider is the track record of accomplishments of the contractor. You want to work with a team that has a proven track record of delivering successful projects similar to your own. This will give you confidence that they can handle your particular project successfully.
Another important factor is whether or not the contractor has control over all aspects of the project. You need to be sure that they will be in charge of construction, procurement, and management, so that you don't have to worry about any miscommunication or other problems along the way. When evaluating potential contractors, it is also important to consider their reputation and experience in your industry as well as their qualifications and certifications.
Increased demand from Europe for US LNG has driven calls for increased investment in new LNG facilities in the Gulf Coast and east coast / west coast. How do you see the demand picture currently?
The European crisis has accelerated the need for LNG, and we see between 50-100 million tons of LNG demand for Europe. We think America could be a dominant player in natural gas. We’ve been in discussions with the European buyers for years but there is now a lot more enthusiasm and a new sense of urgency in getting a deal done.
And I think, by every measure, while we will ultimately transition toward alternative, more environmentally friendly energy fuels, it will take a while. I still view this as more of an evolution than a revolution, so I see LNG markets continuing to be very strong going forward. Our FID should be in early 2023 and we should be shipping online by 2026 to meet that market demand.
Paul Varello will be speaking at the LNG Export Engineering & Construction Conference & Exhibition, May 31 - June 1 in Houston. For more information visit www.lngexport.us