Japan’s Inpex has filed a lawsuit against compatriot JGC, one of the three-member JKC consortium relating to the protracted dispute over construction of the giant Ichthys liquefied natural gas export project in northern Australia.

JKC — which comprises KBR of the US and Japan’s Chiyoda and JGC — in 2012 was awarded the engineering, procurement and construction contract for the Ichthys onshore LNG project.

However, during the construction phase, subcontractors demanded additional payments to cover the increased costs. Inpex affiliate Ichthys LNG and JKC then entered into a deed whereby the operator provided interim funding of AS$757.7 million (US$591.4 million) to enable the consortium “to settle certain claims with its subcontractors”, Inpex informed on Tuesday. The deed provided that JKC was obliged to repay the entire funding on 31 December 2020.

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Since then, a dispute has arisen regarding the payment of additional charges and arbitration has been taking place in Singapore.

Inpex confirmed that ILNG and JKC are currently involved in arbitration proceedings over amounts including construction costs.

The arbitral tribunal in December issued a partial award confirming that JKC's obligation to repay the funding to ILNG at the end of 2021 was “valid and enforceable”.

“Notwithstanding the partial award, JKC has still not repaid the funding. Therefore, on 16 April, ILNG submitted a claim against JGC, which holds the largest share in JKC, in the Yokohama District Court seeking repayment of the funding, pursuant to the parent company guarantee provided by JGC,” Inpex said in a statement.

Spiralling costs

The grassroots Ichthys LNG project saw costs spiral to more than $45 billion versus the original $34 billion.

The JKC joint venture partners are JGC on 40% and KBR and Chiyoda with 30% apiece.

The consortium itself last year lost its appeal against a group of subcontractors linked to the Ichthys LNG project.

The subcontractors — GE, UGL and CH2M — were responsible for the Ichthys combined cycle power plant, but walked off the job in early 2017, leaving JKC to complete the work with the support of new sub-contractors.

However, Western Australia’s Supreme Court last July dismissed JKC’s appeal against a 2019 ruling in which JKC had claimed parent company guarantees against the three subcontractors.

KBR earlier said that JKC had initiated the suit against the parent companies to seek a declaration that the parents either had to perform and finish the work or pay for the completion of the power plant based on their payment and performance guarantees.

This ruling did not bring the dispute to an end; the issue as to which party validly terminated the subcontract is the subject of an international arbitration.

The JKC venture racked up as much as $2.7 billion in change orders and claims during the execution of its workscope.

It is also in dispute with the sub-contractors that built the four LNG storage tanks — Laing O’Rourke and Kawasaki Heavy Industries.

Plateau production rate at Inpex’s Ichthys project is 8.9 million tonnes per annum of LNG, 1.6 million tpa of liquid petroleum gas and 100,000 barrels per day of condensate. The operator said it was “continuing stable production operations at Ichthys… alongside its project partners”.

Inpex added it would promptly make an announcement in the event further disclosure is required.

Updated to include Inpex's statement.