Well before big money gets committed to construct a liquefied natural gas export project, sponsors typically spend years studying such questions as: Should this project get built? Does it make business sense? And, as the analysis progresses: Does this project continue to make sense?
The proposed $45 billion to $65 billion Alaska LNG export project is going through that process now.
It's the up-front planning that is critical to megaproject success.
When done well, this pre-construction work can be the reason a project gets built on time and on budget, and creates the kind of cash flow the board of directors was told to expect.
The work goes by different names in different industries. For Alaska LNG, the current work is called pre-FEED--or pre-front-end engineering and design--which will be followed by a more intense FEED phase if the project continues.
During these stages, the project team selects the technology to be used in the production units. It chooses sites for facilities and does initial layouts. Utilities are plotted. Labor needs, particularly skilled-labor needs, get problem solved. Pipeline routing and the related issues--soils, vegetation, river and wetlands crossings--get documented and the best solutions determined. Needed licenses, authorizations and environmental permits are identified and many might even be secured. Markets are assessed and reassessed. A financing plan is defined.
For Alaska, the remote location creates logistical challenges that need detailed planning: Winter-only burial of the 800-mile pipeline because that's when the tundra is frozen; summer-only delivery of massive gas treatment plant modules to the North Slope because that's when Arctic sea ice is absent.
"The definition of a project, from the formation of the core team until full-funds authorization is achieved, is what we call the FEL [front-end loading] process," wrote development guru Edward Merrow in his 2011 book "Industrial Megaprojects: Concepts, Strategies, and Practices for Success."
"FEL is the single most important predictive indicator of project success. There are very few project professionals in the process industries who do not agree with the basic principle that definition and planning drive success, and those who don't should probably be in some other line of work."
Merrow is founder and president of Independent Project Analysis Inc., a major consultancy whose client list includes some of the biggest companies in the world. IPA conducted a megaprojects seminar for Alaska lawmakers in 2011.
"Megaprojects are the most important projects in any industrial company's portfolio," Merrow said in his book.
"When they succeed, the company is strengthened for the long term. When they fail, massive amounts of shareholder wealth can be made to evaporate in a single project."
Even though good up-front planning means better project results, half of all megaprojects in his company's vast database fail to meet that standard, and their failure rate is high. LNG projects do a little better than this average "but not systematically so," he said.
For Alaska LNG, Steve Butt is the man charged with making sure the up-front planning is excellent. He's a career ExxonMobil manager and the senior project manager for this project, having worked stints with ExxonMobil most recently on its big LNG projects in Qatar.
"Megaprojects are often defined as projects over $1 billion," Butt told an Alaska Senate Resources Committee on Feb. 3. "In today's world they're sometimes defined as projects over $10 billion. By any metric this is one of the largest megaprojects ever, and in some ways it's really five megaprojects, each one working with each other....
"No one has ever permitted a project this large. No one has ever permitted an 800-mile pipeline in the NEPA (environmental impact statement) era in the U.S. No one has ever done an LNG plant this big or a gas treatment plant this big. We'll have to do all three."
"Ignorance is the mother of research."
--Laurence J. Peter, founder of the Peter Principle
ExxonMobil owns the largest proportion of North Slope gas that would be produced for the...