Two years after a Royal Dutch Shell PLC-led consortium gave the commercial go-ahead for the massive LNG Canada export terminal in British Columbia — dubbed the single largest private sector investment in Canadian history — construction delays have clouded the LNG supply picture and raised the prospect of cost overruns.

The project was likely about four months behind schedule in February because of factors that included delays in engineering and making equipment for the terminal off-site, according to analysts at the investment research firm Webber Research & Advisory. Now the project is probably around six months behind, which is enough to suggest the potential for significant cost overruns and pressure on a planned expansion, the firm said.

"If they are that far behind heading into COVID, I find it hard to believe the delay is not going to ultimately be measured in years," Managing Partner Michael Webber said in an interview.

Traditional methods of addressing a delay, such as back-weighting the construction schedule or bringing in a surge of craft labor, will likely be more difficult and costly because of the pandemic, Webber said.

Fluor Corp., the contractor building the terminal in a partnership with JGC Corp., said in Sept. 25 call with investors that the construction schedule for the terminal suffered a delay after the developer was forced to reduce by half the amount of staff at the construction site in Kitimat, British Columbia, including workers flying in on rotation, as a precaution against the virus.

"LNG Canada — it is behind because of the pandemic," Fluor CEO Carlos Hernandez said during the call.

A Fluor spokesperson declined to specify any changes to the project timeline. A spokesperson for LNG Canada Development Inc. said in an email that the developer remains "committed to delivering first cargo by the middle of this decade."

The ultimate impact of the project's timing on the gas markets remains unclear and depends in part on the ability of the developer to play catch up in building the two-train project, which would be capable of producing about 14 million tonnes of LNG per year.

There are also signs of cost overruns. Hernandez told investors that LNG Canada was one of Fluor's projects to be impacted by "force majeure events." Fluor was in talks with clients about how to handle cost and schedule changes.

The consortium that commercially sanctioned the $31 billion LNG Canada project in 2018 included large buyers of LNG — PetroChina Co. Ltd., Korea Gas Corp., Malaysia's Petroliam Nasional Bhd., and Japan's Mitsubishi Corp. It was the first final investment decision in five years anywhere in the world for a major new LNG export terminal, although others have followed since. There are also signs of cost overruns. Hernandez told investors that LNG Canada was one of Fluor's projects that were impacted by "force majeure events." Fluor was in talks with clients about how to handle cost and schedule changes.

At the time, a spokesperson for the developer said the plant was targeted to come online in 2023 or 2024 with the original two trains. The developer more recently said the target for shipping the first LNG exports was 2025 and that it expected to decide by then whether to double the terminal's capacity with a two-train expansion.

Fluor said the project is now 27.5% complete on an overall basis, factoring in engineering, procurement, construction, fabrication and so forth. "Now obviously, that's not construction," Hernandez said. "Construction is less than that. But we're comfortable with the progress that has been made to date."

Fluor told investors it had increased the workforce on the project back to pre-pandemic levels and that the company expected staff to increase to 2,500 on-site by the end of the year. The project is relying on liquefaction modules being fabricated in China, which has restricted its borders because of the pandemic. But Fluor said the majority of its fabrication management teams have been able to work remotely and they should be able to return to China by the end of the year.

LNG Canada said in a statement that the construction companies "continue to hit critical construction milestones."

"We are about to enter our third year of constructing the LNG export facility: Major work scopes are well underway and continuing," LNG Canada said. "These include but are not limited to advanced site preparation, pile driving and dredging, and construction of our module haul road and our marine terminal."

Other LNG projects under construction in North America have not disclosed disruptions from the pandemic to the extent that LNG Canada has. Cheniere Energy Inc., the top LNG exporter in the U.S., announced in August that one of the two new liquefaction trains it is building is ahead of schedule. That company now expects the project, a sixth liquefaction train at its Sabine Pass LNG facility in Louisiana, to come online in the second half of 2022, ahead of a previous forecast of 2023. The company said its other project, a third train at its Corpus Christi LNG terminal in Texas, remains on track for completion in the first half of 2021.

Besides the Cheniere projects, two new LNG terminals are in construction in Louisiana and Texas. Developers of these facilities, Venture Global LNG and Golden Pass LNG Terminal, have maintained targeted in-service dates before the middle of the decade.

Experts have nonetheless pointed to a heightened risk of delays for LNG projects since the onset of the pandemic.

"LNG Canada's challenges are going to be unique ... so I would hesitate to say they are significantly worse off than anything we have seen in North America," Webber said. "Given the mix of issues there, and the difficulty associated with flexing labor productivity and COVID in general, I think it certainly has the potential to be one of the more severely impacted, if it's not already."