Australia's Ichthys LNG dealt blow as major contractor pulls plug

SINGAPORE (Reuters) -- Australia's over $35 billion Ichthys liquefied natural gas (LNG) export project has been dealt a blow as engineering firm CIMIC, involved in building the facility's power station, announced on Wednesday it was pulling the plug.

"CIMIC Group advises that the ... consortium (building the power station) ... has terminated its contract with JKC Australia LNG Pty Ltd for the design, construction and commissioning of the Ichthys Combined Cycle Power Plant (CCPP) project," CIMIC said in a statement to the Australian Securities Exchange Ltd (ASX) on Wednesday.

CIMIC spokeswoman Fiona Tyndall said "we are not going beyond what we have said in that ASX statement."

The power station is designed to supply the Ichthys LNG export facility with electricity.

A spokesman for Japan's Inpex, the majority owner of Ichthys LNG, said the power station was 89% complete.

And while the spokesman said Inpex did not see this cancellation as "critical" to Ichthys and that it would have "no fatal influence" on its launch, the cancellation will almost certainly delay the project's production ramp-up and add further costs, which was scheduled for July to September this year.

Australia's $200 billion LNG production ramp-up is one of the biggest increases in supply the industry has ever seen, and will lift Australia over Qatar as the world's biggest LNG exporter.

Even so, most of Australia's LNG projects currently under construction, including Chevron's huge Gorgon facility and Royal Dutch Shell's floating Prelude production vessel, are having trouble keeping within budget and sticking to schedules, and more delays are expected.

"All projects currently being built or expanded in Australia are having trouble with time and cost control. They will almost certainly see further delays," a source advising LNG producers said on condition of anonymity.

Once completed, Ichthys will produce 8.4 MMt of LNG per year.

Inpex holds 72.8% of the project, France's Total 24%, with the rest spread over Japanese utilities Tokyo Gas, Osaka Gas, and Toho Gas .

CIMIC gained the power station and infrastructure contracts for Ichthys after taking over Australian engineering firm UGL last year.

UGL said in its last annual report that "unfortunately, the projects continued to be impacted by significant client delays and disruption resulting in additional costs incurred."

CIMIC said the termination of the contract will not have any "material impact" on its 2016 and 2017 financial results.

Reporting by Henning Gloystein; Additional reporting by Osamu Tsukimori in TOKYO and Tom Westbrook in SYDNEY; Editing by Tom Hogue and Christian Schmollinger

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