March 15, 2017 / 6:05 AM / 5 months ago

Inpex's Ichthys LNG hit by another contract dispute

SYDNEY/TOKYO, March 15 (Reuters) - Inpex's $37 billion Ichthys Australian liquefied natural gas project was hit by another subcontractor dispute, involving the termination of more than 600 workers, but the Japanese company said it was still on schedule for a July-September start.

Members of a consortium building LNG storage tanks at the onshore site of Ichthys near Darwin are in dispute with each other and have stopped work, with one of them abruptly letting go 640 workers, said JKC Australia LNG, which is handling overall construction of the project, on Wednesday.

Inpex said the tanks were 91 percent complete and the project remained on schedule to start shipping LNG to customers in the third quarter.

Still, the disagreement is the latest potential delay in Australia's $200 billion LNG ramp-up, one of the biggest supply increases ever in the gas industry and which will lift Australia over Qatar as top global exporter of the fuel.

The Ichthys dispute is not good news for the project's timely completion, said Saul Kavonic, a Perth-based analyst for global resource consultancy Wood Mackenzie.

"Inpex is targeting a very aggressive construction completion ... to get a first cargo out by the end of September, given the central processing facility, the largest in the world, is still in a Korean ship yard," Kavonic said.

Inpex is not directly involved in the disagreement because it's a matter between subcontractors, so it is not in a position to comment, the Japanese company said.

The disagreement between consortium members Kawasaki Heavy Industries and Laing O'Rourke PLC involves a payment dispute, with JKC saying the latter has released about 245 local hires and 395 other workers that fly in and out.

Ichthys was hit by an earlier contractual dispute in January when an engineering company building a power plant for Ichthys pulled out of the project.

The Australian Manufacturing Workers' Union in a statement said the lay-offs were "due to an ongoing contractual dispute on the project regarding payments."

Kawasaki Heavy has not paid its partner for work on the project for several months, Laing O'Rourke said in a statement.

Kawasaki Heavy could not immediately comment.

Most of the LNG plants being built in Australia, including Chevron's huge Gorgon facility and Royal Dutch Shell's floating Prelude production vessel, are having trouble keeping within budget and on schedule. More delays are expected.

Once completed, Ichthys will produce 8.9 million tonnes of LNG per year.

Inpex holds 62.245 percent of Ichthys and France's Total 30 percent. The rest is spread amongst Taiwan's CPC Corp and Japanese utilities Tokyo Gas, Osaka Gas, Kansai Electric, JERA Corp and Toho Gas .

Reporting by Sonali Paul in SYDNEY and Osamu Tsukimori in TOKYO; Writing by Aaron Sheldrick; Editing by Tom Hogue

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