6 Energy Megaprojects That Blew Past Their Budgets

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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• Energy megaprojects frequently suffer from massive cost overruns and delays, with less than 3% completed on time and on budget.
• Examples include Kashagan, Gorgon LNG, and the Trans Mountain Expansion.
• Challenges range from technical and logistical issues to political risks and infrastructure gaps

A growing share of the global economy is increasingly committed to large-scale, complex, and expensive undertakings involving massive infrastructure development and technological advancements, aka megaprojects. Annual worldwide spending on megaprojects such as high-speed railway systems, international airports, hydroelectric dams, motorways, power plants, wind and solar farms, as well as large public ICT systems to digitize tax, health, and pensions is estimated at between US$6 and US$8 trillion, or 8% of global GDP. Unfortunately, it has become a well established fact that megaprojects–defined as projects with budgets in excess of US$1billion–consistently fail to be delivered on time or on budget. Indeed, a study by Oxford University’s Saïd Business School found that less than 3% of megaprojects are delivered both on budget and on time.  

Megaprojects are, by their very nature, often pioneering and difficult to manage, with high early-stage sunk costs frequently creating project lock-in and subsequent cost overruns. Egypt’s Suez Canal took this to the extreme, with a cost overrun estimated at 1,900%, or 20 times the original budget. 

Here are six large-scale energy megaprojects that experienced significant budget overruns but remain relevant today either because of their long-term output, strategic value, or lessons learned.

Source: Saïd Business School

1. Kashagan Oil Field (Kazakhstan)

• Initial est. $10bn → Final cost ~$55bn
• Long delays, technical problems (H?S corrosion), but now a major contributor to global supply

The Kashagan Oil Field was discovered in 2000 in Kazakhstan in the northern region of the Caspian Sea. The field has recoverable oil reserves estimated at 19- billion barrels, making it one of the largest fossil fuel discoveries over the past four decades. A consortium of seven companies was formed in order to develop the reserves, with Exxon Mobil (NYSE:XOM), Shell Plc (NYSE:SHEL), Eni S.p.A (NYSE:E), TotalEnergies (NYSE:TTE) and Kazakhstan’s KazMunayGas each owning a 16.8% stake in the project while China National Petroleum Corporation and Japan’s Impex owned 8.4% and 7.6% share, respectively. Project development kicked off in 2001 with an expected completion date of 2005. The initial allocated budget for the venture was US$10 billion, which was viewed as a reasonable figure to help generate considerable income for the young country.

Unfortunately, the project fell eight years behind schedule and ended up costing $55 billion, more than five times the original budget. To add insult to injury, operations had to be shut down shortly after the project went live in 2013 due to a damaged main pipeline leaking dangerous and corrosive hydrogen sulfide (H2S) gas into the atmosphere. The consortium burned off the gas as an emergency measure, releasing toxic sulfur dioxide (SO2) into the atmosphere.

Nevertheless, the Kashagan Oil Field has been an economic success, contributing significantly to the Kazakhstan economy by being a major source of oil production and export revenue. According to Offshore Technology, Kashagan accounts for ~19% of Kazakhstan’s 1.9 million barrels in daily oil output, translating into significant revenue for the country through taxes, royalties, and other payments.

1. Gorgon LNG (Australia)

• Original est. ~A$37bn → Final ~A$54bn
• Execution challenges on Barrow Island; still key to Asian LNG trade

The Gorgon liquefied natural gas (LNG) project in Western Australia is not only the country’s biggest single resource natural gas project but also one of the largest natural gas projects in the world. The Gorgon gas field was first discovered in 1980 by West Australian Petroleum (WAPET) before Chevron Corp. kicked off oil and gas exploration at the field in 1999. Chevron owns 47.3% stake in the project while Exxon Mobil and Shell own a 25% share apiece. Construction on the project began in 2009 and was completed in March 2016, making Gorgon the fourth LNG export development in Australia. Gorgon comprises three LNG trains, each with a capacity of 5.2 million tonnes per annum (Mtpa). 

Similar to the vast majority of megaprojects, Gorgon LNG experienced significant delays and cost overruns. Initially estimated to cost $37 billion, the project ultimately cost $54 billion mainly due to logistical challenges of building on the remote Barrow Island, making the project Australia’s largest single private sector investment in history. Further, the project missed its delivery date by two years due to weather delays, staffing and skill requirements, high wages, low productivity  and logistical challenges. However, it was well worth it because the Gorgon LNG project remains a pivotal player in the Asian LNG trade, with its large production capacity and strategic location in Western Australia making it a crucial supplier to the Asia-Pacific region.

1. Tapi Pipeline (Turkmenistan–Afghanistan–Pakistan–India)

• Political risks and delays; cost ballooned from ~$7bn to over $10bn
• Still relevant to Central/South Asian gas integration

The TAPI Pipeline, or Turkmenistan-Afghanistan-Pakistan-India Pipeline, is a project with a long and complex history, dating back to initial discussions in the 1990s. The pipeline is designed to transport natural gas from Turkmenistan to Afghanistan, Pakistan, and India, aiming to address energy needs in the region. Despite its potential benefits, the project has faced numerous delays and challenges throughout its development. 

TAPI is poised to be a game changer in Central Asia’s energy landscape. The US$10 billion pipeline will cover more than 1,800 km and transport up to 33 billion cubic metres (bcm) of natural gas from the Galkynysh Gas Field in Turkmenistan to Pakistan and India via Afghanistan. Pakistan and India are slated to receive 14 bcm via the natural gas pipeline while Afghanistan will receive 5 bcm. The Galkynysh Gas Field is the world’s second-largest gas field in terms of gas reserves.

Construction of TAPI began in 201 but was soon halted due to security reasons after workers were killed by unknown assailants. However, the gas pipeline has once again become the focus of attention following the exit of U.S. forces from Afghanistan in 2021. Still, China remains hesitant to engage directly in the project due to security risks.

1. Trans Mountain Expansion (Canada)

• Estimated at ~$5.4bn in 2013 → ~$30.9bn by 2023
• Continues to shape Canadian export politics and oil sands economics

Back in 201, the Canadian government bought and nationalized the existing Trans Mountain Pipeline from a unit of Kinder Morgan Inc. (NYSE:KMI) in a bid to ensure that the expansion would be built. In effect, the federal government acquired its corporate owner, Trans Mountain, which became a federal Crown corporation with Ottawa framing this decision around the desire to secure a key Canadian asset. TMX ended up witnessing massive cost overruns, with the project costing C$34 billion, more than six times the original estimate.

TMX is expected to triple the flow of crude from landlocked Alberta to Canada’s Pacific coast to 890,000 barrels per day (bpd). The pipeline is viewed as a boon to Asian refiners since it provides them with an opportunity to diversify their imports while also giving Canadian producers more access to U.S. West Coast and Asian markets. TMX crude exports are expected to clock in at ~350,000-400,000 bpd, and compete with heavy grades from the Middle East and Latin America. Cold Lake crude is about $10 per barrel cheaper than Iraq’s Basra Heavy for deliveries to China.

1. Mingyang Qingzhou 4 Offshore Wind (China)

• Cost overruns linked to subsea transmission and turbine scaling
• Now a test case in high-capacity wind integration

The Mingyang Qingzhou 4 offshore wind farm project is part of a larger development by Mingyang Smart Energy in the waters off the coast of Guangdong, China. This project is focused on utilizing deep-sea floating wind turbine technology to harness wind energy in the area. The 16.6 MW floating wind platform is the largest single-capacity floating wind power platform in the world. The floater is capable of generating ~54 GWh annually, enough to power 30,000 homes.

The Mingyang Qingzhou 4 offshore wind farm project has faced significant cost overruns due to hthe igh costs of its giant turbines.

1. Ichthys LNG (Australia)

• Est. ~$20bn → Final ~$45bn
• Long lead times, offshore-to-onsite complexity; critical to Japan’s gas supply

Discovered in 2000, Australia’s Ichthys offshore LNG field covers ~800km² off the northern coast of Western Australia. The giant Australian LNG project is estimated to cost ~$45 billion, more than double its initial budget of $20 billion, and produces 8.9 million tonnes (Mt) of LNG annually, 100,000 barrels of condensate a day and and 1.6 Mt of liquefied petroleum gas (LPG) per year over its 40 years of operational life. The project includes 50 subsea production wells; a floating, production, storage, and offloading facility (FPSO) and a semi-submersible central processing facility. This megaproject is owned by its operator, Japan’s INPEX (66.245%), while TotalEnergies owns a 26% stake.

Ichthys is critical for Japan’s energy sector: Approximately 70% of the LNG produced by the Ichthys project is shipped to Japanese buyers, equating to about 10% of Japan’s total annual LNG import volume.

By Alex Kimani for Oilprice.com

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