ABSTRACT
Forecasts are not always accurate. A change in macro-economic, political or social conditions can affect a project’s viability. The owner must do its best to protect itself against uncertainties by reserving the right to discontinue, suspend or slow prosecution of the work. For instance, in the case of power or LNG projects, a serious slump or a sharp spike in gas prices could make building a “peaking” power plant or LNG terminal much less viable. Many technologies have their “day in the sun.” For some, the shade may be only temporary cloud cover; for others, it may mean sunset. In 1620, King James commissioned his advisors to report on fuel supply and they concluded “no wood, no kingdom.” Thus, the British Empire turned to coal to replace wood. Later, it turned to oil to replace coal and British Petroleum (perhaps the most successful economic venture ever) led the search for oil. Natural gas has finally replaced oil as the preferred fuel. New techniques to unlock trapped natural gas may propagate natural gas’s reign. Nuclear, solar, wind, wave and tidal energy remain viable but expensive options for electricity. Yet, although it is like building a dinosaur, coal power plants are still built because the particular situation may require it. Sometimes technological change takes decades, sometimes public opinion can change the future for a technology in a few hours. If a technology change (whether from global public perception or loss of a lawsuit regarding a permit) occurs after notice to proceed has been given to the EPC contractor, the owner may want to scale down its investment (for example, in the case of a power plant by reducing the size of its plant-perhaps by installing less generation capacity than originally anticipated).
