Qatargas LNG Plant Project

BUILDING A LIQUEFIED NATURAL GAS PLANT (LNG) is an expensive, complex, dangerous task. Completing one of the largest plants constructed to date—ahead of schedule and within budget—in a remote, barren desert with a fragile ecosystem, no infrastructure, and virtually no available labor force is a truly remarkable feat.

The Qatar Liquefied Gas Co., Ltd. (Qatargas) was established to build, own, operate and market LNG using the North Field gas reservoir in Qatar, thought to be the largest natural gas reserve in the world, for its supply. Qatargas is a joint venture of the Qartar General Petroleum Co., Total S.A., Mobil Corp., Mitsui & Co. Ltd., and the Marubeni Corp. The contract to build two process units, or “Trains,” of the plant was awarded to the Chiyoda Corp., based in Yokohama, Japan, in May 1993, with an option for a third Train to be awarded on the basis of competitive bidding.

Plant Hand Over (PHO) of the first Train occurred in September 1996, 39 months from contract award, and the second Train was achieved three months later, both one month ahead of the contractual schedule. The optioned third Train was awarded in July 1995, and PHO was achieved in March 1998, 32 months from contract award, eight months ahead of schedule. The contract amount for the overall three-Train project was approximately US$2.3 billion.

To oversee the project within Qatargas a Plant Project Task Force (PTF) team was established to manage and supervise Chiyoda. The PTF, consisting of a project director with a peak staff of about 35 people, was based in Chiyoda's office during the engineering and procurement phase and moved to the site during plant construction.

Within Qartargas, its project team was managed by a project director responsible for the execution of the entire project. Corporate management empowered the project director with all decision-making authority; a degree of authority equivalent to that of a corporate managing director. This degree of authority was necessary to facilitate timely management decisions and authorizations essential for successful project execution. In view of the scale of the project, a deputy project director was assigned to support the project director. During the latter stage of the project and during construction of Train 3, the deputy project manager was appointed as project director to complete the project. A project control manager, senior engineering manager, procurement manager, project coordinators, administration manager, inspection coordinator and construction planning manager were assigned under the project director for each category of project activities. These managers of the project team were delegated with the appropriate approval authority to facilitate efficient day-to-day project management.

Masayuki Ishikura is a senior advisor and serves on the board of directors of Chiyoda Corp., where he has worked for the past 37 years. He has extensive experience in project management and has been involved in major gas and LNG projects for the last 20 years.

Akira Kadoyama is senior general manager of Chiyoda's procurement division and serves on its board of directors. He was deputy project director for the first half of the Qatargas LNG project and project director for the second half. He has 30 years of experience in large projects, including mega-size LNG plants.

Yoshitsugi Kikkawa is a design and engineering consultant for Chiyoda Corp. With 34 years of experience with Chiyoda, he was the lead process engineer for the Qatargas LNG project.

Some 200 members from permanent disciplinary departments supported the dedicated matrix-type project team (about 125 members at its peak) in the home office. At the field construction office, a site manager, supported by a staff of about 150 at its peak, was assigned to supervise construction and commissioning.

Building a Town. A complete town to accommodate 9,000 people was developed and constructed in what was once a desert. The town was built in Ras Laffin (about 70km northeast of the Qatar capital of Doha), where summer temperatures approach 120°F. There was virtually no available workforce nor existing infrastructure. All construction power, potable water (100,000 cubic/meters of chloride-free potable quality water was needed just to hydrotest the LNG storage tanks), sanitation facilities, housing and transportation had to be provided. Before plant construction could begin, a 24Mw power plant, 2,000 cubic/meter per day desalination plant with a backup transportation system to supply a maximum of 1,000 cubic/meter of water per day from Doha, a waste water disposal facility, a completely landscaped satellite town center, and recreation facilities all had to be built. In addition, numerous ecological, environmental and political issues had to be delicately managed in an atmosphere where a local community, not familiar with mammoth construction projects, was adjusting to the intrusion of a mega-project.

Outside of the construction project, additional support infrastructure, such as port facilities, surrounding access roads and area development, were undertaken by the government. These government-provided facilities required continuous coordination to ensure that plant construction schedule was not jeopardized and that facilities were ready as scheduled. Many innovative construction techniques, such as pre-casting large concrete structures and modularization, were used to adhere to schedule when government-provided facilities were not available as previously scheduled. In addition, Qatar's small available work force meant that most of the construction workers had to be brought in from outside the Emirate. The logistics of coordinating and scheduling the infrastructure and work force requirements necessitated exceptional management efforts and team action.

Project Mission. Despite the obstacles presented to them, the project managers announced the project mission at the start of the project: “To complete the first and second LNG Trains two months early.”

The contractor, Chiyoda, met various challenges in managing this mega-sized construction work. The first obstacle was to establish the associated infrastructures and mobilize workers from nearly 40 countries. Project execution strongly emphasized strict quality control, a high level of safety and plant reliability. This policy enabled successful completion ahead of schedule and within budget.

Project Scope Management. To ensure project success, a prime requirement of the management plan was to ensure that project scope included all the work required, and only the work required, with a clear demarcation between the Owner's and Contractor's scope, to complete the project.

Soon after the contract was awarded, Qatargas and Chiyoda jointly reconfirmed the scope of work and responsibilities of the Contractor and Owner, respectively; especially the purchase order conditions for long-lead equipment ordered by Owner prior to awarding the contract.

One policy adopted at the bidding stage was to start engineering optimization studies during the bidding stage, which would permit a fast start for detail engineering if Chiyoda was awarded the contract. The engineering optimization study for mercaptan (a sulphur compound) removal and enhanced sulfur recovery, which was undertaken during the bidding phase, was a key to Chiyoda being awarded the contract. This calculated risk in expending additional laborhours during the bidding phase ultimately paid off in ensuring that the project was completed ahead of schedule.

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Exhibit 1. The Qatargas LNG Plant is located in the northeast region of the Qatar Peninsula.

After contract award, Chiyoda's management decided that because of the contract value and project scale—one of the biggest in Chiyoda's history—a special review of the entire company organization was merited to select personnel for the key positions. Only those personnel with good LNG project experience or who were the best in their particular field were assigned to key positions.

All suitable project management techniques were utilized, including state-of-the-art management software—Primavera Project Planner for Windows, Artemis Schedule Publisher, Monte Carlo for Primavera, SureTrack Project Manager for Windows, and SPSS Trends.

The Contractor was responsible for mechanical performance of the overall plant except for process guarantees covered by process licensors. The essential criterion of the project was to deliver the LNG product on time or earlier, and to build a reliable plant that would operate safely and reliably for 20–30 years. Two years after plant startup, operating experience tends to indicate that this is an achievable criteria.

Project Time/Schedule Management. To ensure the contractual PHO and the first scheduled LNG delivery, an internal target schedule for the project was established. This target schedule was developed to complete Trains 1 and 2 two months early, and Train 3 six months early. All detailed schedules were developed based on this target schedule. The approved bar chart schedule shown in Exhibit 2 was used as the official master schedule.

The schedule control process applied for this project consisted of three components: planning, monitoring, corrective action. At the planning step, project management decided to complete the project two months early to minimize the risk of unexpected delays and reduce costs. Planning included scope and milestone schedule definition, detailed schedule development and analysis. Monitoring required continuous schedule monitoring, comparing actual progress with the detailed schedule, and forecasting the remaining duration through schedule analysis. Detailed monitoring was reported in such formats as the drawing schedule, procurement status report, three-month look-ahead report, and weekly construction schedule. The progress measurement method involved the summation of progress multiplied by weight factors for each of the work categories.

The value of this detailed scheduling and contingency planning was clearly evident when the project encountered delays associated with obtaining work visas for workers, natural disasters in Japan and Europe which slowed equipment deliveries, and unusually heavy rains at the project site. The detailed multitask scheduling permitted a rapid daily shift in work sequences, where necessary, and minimized loss of project float.

Project Cost/Resource Management. To ensure that the project would be completed within the approved budget, project management established a cost management plan consisting of a currency-wise detailed project execution budget and cash flow forecast. The plan was established early in the project. The cost control process consisted of planning, monitoring, corrective action. The budget and cash flow forecast were authorized at the end of the second month after contract award. Monitoring involved collating cost data and computing a variance analysis. Corrective action was taken as dictated by variance analysis to maintain the budget. Originating and executing an effective cost change control system was another key element of project success. Integrated with the overall change control system, the cost change control system was used by Owner and Chiyoda as an overall control tool. The change workflow consisted of Change Order Instructions (COI) by Qatargas, Change Order Requests (COR) by Chiyoda, and Change Orders (CO) by Qatargas. In all, there were 187 COIs, 170 CORs and 186 COs issued, with a total value of US$96 million.

The field laborhour resource control process also consisted of planning, monitoring, corrective action. The required laborhour definitions and forecasts were established in the planning step. The next step involved calculating a summation of actual laborhours spent and earned laborhours. Work productivity was calculated by dividing the work volume completed by laborhours spent. Using these work productivity figures, the labor needed to complete the work could be estimated. Corrections were made where required by revising the labor mobilization plan jointly with subcontractors.

Project Quality Management. In 1994, Chiyoda acquired ISO 9001 certificates from the British Standards Institution and Japan Quality Assurance Organization.

For this project, a specific project quality system was established to fully address the Owner's quality requirements. To achieve this goal Chiyoda developed quality assurance activities with the cooperation of the Owner's quality organization throughout the project.

A check-and-review system was employed according to discipline design category to ensure the implementation of engineering, procurement and construction according to project requirements, including the established design criteria and standards, environmental requirements, vendor's standards, applicable codes and regulations. Chiyoda instructed its subcontractors and vendors to establish their own quality assurance systems—reflecting Chiyoda's project quality requirements—and, when required, consulted them to ensure the highest standards of quality were met. Exhibit 3 outlines the organizational structure of the quality control system.

Although design calculations, drawings, specifications and study reports were prepared according to a defined review process that included internal checking and coordination, ad hoc audits were made throughout the project by an independent review team that checked to be sure the work was performed according to established quality assurance procedures.

The project document control team maintained on computer a master control log of design drawings, specifications, subcontractor's submittals and other documents to ensure that only the latest issues were used for design and construction. The construction issues of drawings were reviewed, signed and stamped by the authorized engineer according to the quality assurance plan.

After completion of each design and construction phase, all project documents were sequentially archived for easy retrieval. Chiyoda's inspectors and responsible engineers worked closely with subcontractors at the construction site and in equipment vendors’ factories, discussing the need for corrections as the work proceeded. Chiyoda's site quality assurance team conducted daily and weekly quality surveillance reviews at the site.

While executing the project, the quality assurance team issued numerous quality instructions directing corrective actions to be taken by subcontractors and vendors in accordance with the nonconformance control procedure. Exhibit 3 shows a summary of Chiyoda's quality activities.

Project Human Resources Management. The project director, actually the project manager of this project, was chosen because of his vast experience of LNG projects (he had worked for six LNG projects before this assignment). Most of the key positions of the project team were also staffed by personnel experienced in similar LNG projects or mega-sized projects. As a result, the project could benefit directly from the lessons learned on other LNG projects. Team members were encouraged to be creative and rewarded on the basis of their individual participation and contribution to team goals.

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Exhibit 2. This bar chart was used to monitor all aspects of the project.

The matrix-type semi-taskforce organization best fit Chiyoda's style of project execution for various reasons, including effective allocation of labor throughout Chiyoda's disciplinary departments. A project control manager, senior engineering manager, procurement manager, project coordinator, administration manager, inspection coordinator and construction planning manager were assigned for each category of the project activities under the direct control of the project director.

Chiyoda's executive vice president, who was general manager of the overseas project operation, was nominated as the project sponsor for this project to assist the project director on management decisions. Also, a technical advisor was chosen for consultation and advice on any technical issues affecting the project.

As a corporate policy, most of the field engineers and supervisors were assigned from engineers who participated in home office engineering work on the project. This policy has the advantage of ensuring design to construction integrity of the project, and development of an engineer's career by allowing experiences in all of the activities of a project and a personal lessons-learned cycle. In this project, about 50 engineers who worked in the home office were assigned to various positions at the site office.

Project Communications Management. With five shareholders—a government entity, two large multinational oil companies (Mobil Corp. and Total, S.A.) and the Japanese holding companies (Mitsui and Marubeni)—the project had great visibility and was continually in the news as a showplace of Middle East economics. Though most of the communications with the major audiences was carried out by Qatar General Petroleum Corp., a major task of the project team was to present an upbeat picture at all times. Audio/visual presentations and sophisticated computer-generated slideshows were used to make simple yet impressive presentations to the various groups, which included dignitaries from Qatar, the United States, Europe and Japan.

Because the project was a major milestone in the economics of Qatar, it was essential for the project team to keep the government and people of Qatar in the forefront of all the activities during the construction and opening stages of the project. Major milestones were marked by functions advising and educating the local population of the progress of the plant and highlighted by the February 1997 opening of the Qatargas LNG facility hosted by His Highness the Emir, Shaikh Hamad Bin Khalifa Al-Thani.

Chiyoda operated a real-time communication and data transmission system linking the project team and supporting divisions, Qatargas’ home and overseas offices, the construction site office in Ras Laffan, and vendors. Because of a large quantity of documents distributed between the site, Qatargas and its vendors, it would have been inefficient to use paper. The data transmission system allowed transmission of construction documents to the construction site in real time, resulting in a considerable saving of transmittal time, laborhours and costs. As part of its information management implementation procedure, Chiyoda transmitted all information via e-mail using Lotus Notes in combination with its internal Electronic Documents Management System (EDMS).

The EDMS was utilized during all phases of the work to effectively collect and compile technical information generated and updated day by day in a secure and controlled manner. All technical documents completed, under development or in revision were managed by the EDMS.

The design of the Qatargas plant was performed by the most advanced computers available. Chiyoda's global information network connects its headquarters in Japan with offices in the United States, Great Britain, Italy, Singapore and elsewhere through international leased lines. Chiyoda's headquarters was linked with the site in Qatar by an Intelsat digital communication system, which allows videoconference, fax, telephone, and complete data transmission capability using e-mail. Exhibit 4 illustrates these systems.

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Exhibit 3. A check-and-review system was employed according to discipline design category to ensure the implementation of engineering, procurement and construction according to project requirements.

Communication between Japan and Qatar was further enhanced by a communication system with internal exchanges for the rapid exchange of voice, fax and e-mail. At each office of Chiyoda's project team and at the construction site, internal local area networks facilitated the quick exchange of information. In addition to Chiyoda's project offices, Qatargas and its field offices were also supported by this two-way communication network. With both parties making common use of the latest data and information, the project kept moving at a brisk pace.

Project Risk Management. Chiyoda's risk identification involved determining which risks were or were not to be hedged, reviewing the contract with the Owner and categorizing the risk area covered or not covered by conditions of the contract. Major risk areas identified were payment by fixed schedule vs. payment subject to progress; liquidated damages for delay at a rate of 0.2 percent of contract value per week of delay; performance guarantee conditions identified; Qatar income tax and import duties exempted; and other major conditions.

These conditions are common for a LNG plant project. The review of the contract is only the starting point of risk management. Risk quantification and response development were applied to those risks that were not covered by the main contract, such as political risk, financial risk, risk associated with foreign exchange transactions, deficiency of scope/specification, quality and delay in delivery of materials and equipment. Most of the technical risk areas were controlled by the validation of process design and the past experiences of similar LNG projects.

During project execution, many nontechnical risks occurred—large fluctuations of foreign currency exchange rates, material shipment delays due to the Kobe earthquake, shutdown of equipment factory by a flood in Europe, delays in delivery dates due to bankruptcy of vendors, and temporary suspensions of construction work caused by unprecedented flooding at the site. These events were not covered by the contract with the Owner. Chiyoda mitigated the effect to project execution by such risk management methods as forecasting the nature of the risk, effective quantification of risk, effecting suitable countermeasures, and real-time administration of risk, all in close coordination with Qatargas.

On the Qatargas project, even though the revenue from Qatargas was in U.S. Dollars (US$), expenses were in more than 10 currencies. There was a real risk of foreign exchange fluctuations. For example, the exchange rate between the U.S. Dollar and the Japanese Yen (¥) at the bidding stage of the project was 118.50¥/US$1, but by the middle of the project in July 1995 the rate had become 88¥/US$1.

To mitigate the risk of foreign exchange rate fluctuations in the revenue currency and expense currencies, Chiyoda made foreign exchange rate contracts (forward rate contracts between the currencies involved incurred as costs) based on projected costs for each currency at an early stage of the project. These foreign exchange rate contracts enabled fixing the rate between the Dollar and Yen to avoid currency market exchange rate fluctuations.

Foreign exchange rate fluctuation risk is manageable if the original control budget is reviewed and updated by continuously monitoring currencies and cost throughout the life of the project. This monitoring system enabled a comparison between the budget and actual expenditures. Data on the differences was fed back to Chiyoda's financial dept., which manages foreign exchange risk response development, so that it could maintain the exchange contract and reflect the actual cost accordingly.

Exhibit 4. Chiyoda operated a real-time communication and data transmission system linking the project team and supporting divisions, Qatargas’ home and overseas offices, the construction site office in Ras Laffan, and vendors.

Project Contract/Procurement Management. Since LNG is purchased by and distributed by public utilities, the components used for its production must be highly reliable and subject to stringent inspection requirements. Therefore, a project policy of “utilizing only equipment proven for LNG projects” was adopted.

Chiyoda's procurement management plan emphasized overseas procurement to avoid risks due to fluctuation in exchange rates between the Yen and foreign currencies. Out of 1,400 purchase orders worth US$900 million, more than 80 percent of the total value of material and equipment was procured from outside of Japan. Although the quantity of orders placed with Japanese vendors still counted for around 65 percent of the total number, the value of each order was small.

To achieve the primary project objective by the most practical means, an exacting pre-inspection meeting was held with most of the equipment and material vendors to reconfirm and reinforce the contracted delivery schedule and quality requirements.

A task force of procurement personnel was established within the project team to oversee and control all procurement. The staff of 10 was headed by a procurement manager and included an expediting coordinator, inspection coordinator, and shipping coordinator. This select group of procurement specialists was able to investigate potential risks before issuing a purchase order by having veterans of the field make suggestions or take precautions or countermeasures for potentially problematic vendors. Also, vendor engineers for critical equipment, such as the refrigeration compressors and packaged sulfur recovery units, were stationed at the Yokohama Office to assist with finalization of the design.

If vendor manufacturing progress indicated potential delays, Chiyoda made expediting visits to the vendor with Qatargas personnel. The shareholders of Qatargas have strong influence over many vendors and were able to help keep the vendor on schedule. Each vendor's progress was reported daily by a material status report, utilizing the dedicated communication network. This allowed all personnel assigned to the project a real-time awareness of the status of equipment and materials and shipping statuses.

THE QATARGAS LNG PROJECT DEMONSTRATES the successful application of many modern technologies in various aspects during the engineering, procurement and construction phases. The achievements include the removal of high levels of sulphur and mercaptan from feed gas, which was never achieved on previous LNG projects; enhanced sulfur recovery; satellite-linked electronic documents transmission system for easier and quicker communication and project execution; and development of various plant operation tools.

A symbol of Qatar's continuing economic development, these new technologies and the successful completion of this project will serve Qatar for many years to come and have put Qatar in the forefront of premier suppliers of LNG. ■