Interview - Loic Chapuis, Group SVP of Gas & Low Carbon Energies, Technip Energies
Q: Could you give us a brief overview of your background and role at Technip Energies?
A: I started at Technip Energies close to 20 years ago. I am an engineer and I participated in various roles in project management. I was involved in projects like Yamal and Arctic LNG 2 and more in the LNG space. I was in charge of Technip's Paris and European centres and now I am the senior vice president of gas and low-carbon energies at Technip. That’s all the activities, projects and commercial activities for LNG and gas offshore excluding offshore wind – and low-carbon means all the blue hydrogen and blue ammonia.
Q: Can you explain the role that you see LNG playing in the energy transition?
A: The energy transition today, as we see it, first, with Ukrainian events is that countries have to secure their energy supply. So LNG is needed as we speak, in terms of independency, the economy and energy. The second thing is LNG for the production of electricity has 50% less CO2 emissions than coal. Coal is largely used to produce electricity. But in terms of replacements, gas is definitely the area where we have a very good performance in terms of CO2 emissions. So definitely gas – and therefore LNG production – is going to help with the energy transition and lower emissions of CO2.
Q: Demand growth from Europe for US LNG has driven calls for increased investment in new LNG facilities in the Gulf Coast and East Coast/West Coast. What is your current view on the number of projects you think will go ahead over the next few years?
A: Today when we look at the various projects and we cross-check with the demand, there is expected to be at least 50-80 mtpa of additional capacity compared to the current production capacity in the US. The vast majority of the new increased capacity in the world is going to come from the US, Middle East and Africa. There is huge demand from – indeed – Europe, knocking at the door of the main LNG players. When we look at the number of projects and the various maturity levels of developmental projects in the US, my expectation is that not all will go to FID. There is more, I would say, than needed or expected. For the ones which are going to become reality it's more difficult because it depends on maturity, costs and viability. There will be many factors to figure out en route to FID. But surely there will be in the range of 50-80 mtpa coming from US additional capacity.
Q: Could you share with us some of the major LNG export projects Technip is currently involved with globally?
A: As we speak, we are starting up Coral Sul LNG, and we are about to finalise the start-up. We are involved in the NFE project, which is the largest project in LNG space. We are no longer involved in Arctic LNG 2, but we were in Arctic LNG 2 and Yamal. We are also involved in the ECA project. ECA is Sempra in Mexico, in Ensenada. We are involved in various FEEDs, so there are some that I can disclose and some others that I cannot disclose. But the ones I can disclose are Texas LNG and Commonwealth. It is publicly known that we're involved in those two projects. And beyond we are involved in other FEEDs – in total, we are involved in close to eight FEEDs – including the two I've mentioned, for LNG projects.
Q: Technip is a pioneer in plant modularization – what are some of the major projects Technip has been involved with that have used this approach? And can you share what you see are the key benefits as well as considerations project developers should consider when evaluating a modular approach for their project?
A: Sure. The biggest ones and the most famous ones are obviously Yamal and Arctic LNG 2, with Yamal being the first one. Yamal is a project with a very large number of modules - 150 modules - as the entire plant was modularized. The fact that we do modules – it depends to what extent we go – but the fact is that modularizing the plants is enabling us to reduce manual work that you are going to do at site, at the ultimate location. Given that, depending on the constraints – those being availability of workforce or environmental conditions – you might want to reduce the maximum extent of the man-hours that you want to do at site. It's less valid for Middle East programmes because those are largely stick-built programmes, because you have a workforce available and the capability to work for stick-built production. But when it comes to plants in the north of Siberia or in the US, where sometimes the workforce is not as available and quite costly, then it is worth doing it elsewhere – meaning the yard.
One aspect is security and certainty in scheduling. You actually maximise the work that you do in the yard, which is controlled with tools and equipment that are made for the production of modules and mean that you are improving the productivity overall by using the best assets of the yard, which is very well-trained to produce modules. It depends but it is largely different from stick-built production, where you have to install your own equipment and you have to make your pre-fabrication and fabrication in-situ. While when you go for a yard, they have their workshops already prepared, with very good productivity for pre-fabrication of components. And you are still producing something very quickly.
The other aspect of modularization is it is actually a bit more expensive in terms of quantity. Because transporting modules on the sea means that you need to take into account the acceleration and various components of seatransportation. So, it has an impact on the quantities overall. But the drawback of having more quantities and therefore a bit more capex is also a gain on the schedule because you go for something that is cheaper in terms of man hours worked for fabrication. And secondly there is more certainty of schedule, where you can speed up and you can go faster than some stick-built plants.
Q: As the move towards greener LNG facilities gathers pace, what are some of the most exciting green technologies/projects you are seeing implemented currently? And what are some of the latest solutions Technip is developing to create greener LNG facilities?
A: There are two aspects, actually. First there is the capture of the native CO2. The second thing is the electrification of processes. The new generation is going to be electrified, meaning the motor will not consume any gas to work, so the production of electricity can either come from the grid, if there is grid availability around, or it can also come from the power generation used by gas turbines, but with combined cycle and CO2 capture. We now have projects around the world where we have electricity production that can be coming from gas but still capturing a significant amount of CO2, using combined cycle plus capture of CO2 plus combustion. You have projects around the world like Net Zero Teesside, for instance. So, the matter is to do the same to produce electricity for LNG plants and to use this electricity to run the motors and compressors that are necessary for LNG production. That means that there will be no gas consumption for that, no gas burned for the use of turbines. And this represents in the range of 5-8% of gas that will not be consumed and the CO2 not released.
Beyond that, there are other things we can do. Normally you have some flaring, but we are using processes where there is no flaring policy, even in the start-up sequence, where you can recycle the gas and not emit anything at the flare during all the transition processes.
Q: Many project developers are currently grappling with challenges such as material cost inflation, supply chain and logistics challenges and construction labour shortages. How long do you see these issues lasting? And what are some of the ways in which project developers can help mitigate these challenges?
A: There has surely been an increase in the price of equipment and bulk materials. There was a period where the volatility of the price was such that we had difficulty getting validity of price. Now, it has come back to a more reasonable period where we can actually get validity, but there is an increase in production and supply. It varies from one material to another – I cannot give you percentages, but there is an increase in these costs. But on the opposite side, the gas price has also increased so it is easy to absorb these costs when we look at the capex perspective. And you are also already engaged or will engage very early with suppliers. We are doing pre-commitments, we are doing MOUs and standard agreements with the main suppliers to secure slots and to schedule pre-commitments in order to have the availability of that equipment at the time we would need to build the plants. It means that in terms of schedule generally we are spending a lot of time in FEED. At the end of the FEED we are doing as much as we can – securitization of the main equipment – with even the pre-commitments, buying at the early phase of engineering for this type of procurement.
Q: How do you think the development of major LNG projects has changed over the past decade?
A: Over the past decade, there was a lack of investment in the LNG space. Even before the Ukrainian war, we saw that FIDs should have risen and there was a gap between demand and production. The second thing is there are two trends. There is the trend where we see large trains – that is very specific to Qatar. When it comes to other fields, we see a tendency for modularization and medium or smaller trains, with a capacity not exceeding 3 mtpa per train because of the flexibility of construction, flexibility of start-up, compared to what we do in Qatar at 8-plus mtpa per train.
Q: Given the backdrop of material cost escalation currently, how do you see the traditional lump sum turnkey model adapting to create a risk structure which is a win-win for both operators and contractors?
A: Lump sum is not a win-win for both contractors and operators every time. Generally, it is a win for operators, but not for contractors. Also, the intent of the modularization is to focus contractors on what they control, which is the EP and fabrication – that means engineering and procurement, of which we have a good view because we are procuring $80 billion every year. We have certainty and we then know how to control those. We also do the fabrication of modules because we know how to control the yards for production and this is our job. When it comes to construction, this is where we actually see discussions with operators and go for more flexible types of contracts for the construction stage.
Q: What do you see as the key pillars to successful project execution?
A: For us, first it is anticipation, even from clients. When we say anticipation, it’s being in a position to secure capacities with vendors, as I mentioned before. The second thing is to find the right model and the right sharing price and not having every single contractor shoulder pure EPC lump sum turnkey. By the way, I see that most of the contractors are the same as us and pushing back the risk of construction, I would say. So it's the right balance and also being in the mode of sharing the potential benefits of the LNG market as we speak. Today there is a boom and there is a huge increase on the spot price – potentially the long-term price will be higher than 2019 prices – so we think that this has to be shared and will unlock the capacity.
I was involved in the Yamal project and the construction and the discussion with Novatek was very constructive and very focused on delivery. It means everything was made not to put everything on contactor shoulders but to help with delivery. It was not the mentality of having a project, and the contract being respected word by word. We largely had the risk of construction, and we were largely boosted and helped by the client. It is there where I see the win-win – it's to find the right balance in the contractual model and to put pressure on contractors where they should have control and have more flexibility where it's more difficult because of inherent risks that are less controlled because of the constraints and the consequences you can see at site.
Q: How important is the relationship between owner and EPC? And what advice would you give to owners on how to work most effectively with their EPC partner?
A: We have to first have a constructive discussion and to inform where in the contract we can help each other. Then there also the question of incentives. I worked on a project where we had incentives based on the schedule, based also on performance of the plans. Generally, we are seeing something which is more of a penalty with liabilities, or it's always lose-gain, we say. It depends because we are allowed to make some investments. To take a very concrete example, when you have an issue with materials – sometimes for bulk materials – if you know that you can gain an incentive at the end because you make it a few weeks ahead of planning, then you will have the tendency to invest in a more expensive vendor that will secure better days for delivery, for instance. And you factor this in your price or when you are doing the execution of the project, you factor this in. You know that you will get that money, so you are allowed to invest to improve your money later. And this is a tendency that we didn’t see every time with clients adopting a very strict lump sum turnkey approach in the past, and not benefiting from a very good discussion when it comes to improvement and anticipation.
Q: What are some of the latest technological innovations in construction which are catching your eye?
A: In construction, I would say like this is more around the modularization to improve productivity, but there are no breakthrough technologies in the construction part that I can see today in the current projects we have. But it is a matter of anticipating and also having a very – I would say – digital way to programme the work, to improve efficiency and ensure that there is enough work around for workers at site. So always the same better but we are improving every day with methodology, with project management and supervision.
Loic Chapuis will be speaking at the LNG Export Engineering & Construction Conference & Exhibition, May 31 - June 1 in Houston. For more information visit www.lngexport.us