Despite the recent drop in commodity prices, there is plenty of opportunity looming for the gas sector. Richard Szabo spoke with experts about what opportunities are available are what companies can do now to prepare for the next boom cycle.
The gas industry has arguably seen better days, with the average price of liquefied natural gas (LNG) staying well below the average price for more than a year. Gas producers have responded to this by scaling back plant construction activity until commodity prices return to more favourable levels.
Global professional services group Deloitte estimates the global number of oil and gas industry redundancies could exceed 100,000, with the brunt of losses suffered by the services industry. However, it is not all doom and gloom with most jobs retained in the exploration and production fields.
National director for oil and gas Geoffrey Cann reveals there is still plenty of demand for talent, but it has clearly shifted away from the construction and build phase to operational activities.
“Up until recently, the world’s gas industry has focused on the construction aspect and little attention has been paid to the more interesting dimension of having to run the plants for 20 years or longer,” Cann says.
NUMBER OF TRAINS TO SOAR
Deloitte predicts a jump in the number of LNG trains from eight to 21, sometime in the next 18 to 20 months. With each train producing an average of 4 million tonnes of LNG a year, such growth has the potential to inflate annual gas output by nearly three times to 84 million tonnes.
The additional 13 production trains are expected to come online before the end of 2017. This is already in addition to the eight trains operating at the $2 billion North West Shelf Project off the coast of Western Australia, $1.8 billion Darwin LNG Project and $20.4 billion Queensland Curtis LNG Project.
“It is inconceivable that you can add 13 to the eight we are running and not experience more demand for labour. These machines do not run unattended; they require maintenance and servicing,” Cann says.
“We are going from a boom-bust cycle in constructing these plants to a new boom in operating and maintaining them. This will create a mini-boom in demand for related jobs and services. There is a whole range of operational work that will provide long-term job opportunities for operators, drillers, well operators, equipment installers, people who need to flood used wells with cement and others who recycle the steel.
“Each LNG train needs 100 to 150 operators; they are highly trained individuals. In North America, you need to complete extensive training before being allowed to work as an operator. It is a career path for a highly skilled capability.”
The Australian Petroleum Production and Exploration Association (APPEA) is also upbeat about the future of the gas market.
“Natural gas will remain an integral part of the global energy mix, growing at 2.4 per cent per year until 2018, according to the International Energy Agency’s short term forecast,” APPEA Eastern Australia chief operating officer Paul Fennelly says.
“As such these projects will continue to provide significant economic benefits to Queensland for decades to come. Two more LNG projects, $18.5 billion Gladstone LNG (GLNG) and $24.7 billion Australia Pacific LNG (APLNG), are expected to start exporting LNG by the end of the year. We cannot think of any Australian industry in the last century, which has reached such a significant global position in such a short period of time. It is an astonishing achievement.”
The next operations boom will be different, says Cann, because it will neither be as sudden nor attract the same lucrative level of salaries as the previous cycle.
“Natural gas will remain an integral part of the global energy mix, growing at 2.4 per cent per year until 2018…”
“The construction boom we had eight projects all building seriously at the same time, so that creates all kinds of cost pressures, labour rates go up and shortages. The boom will feel different; it will be a modest boom in electricians, plumbers, services professionals, operators, maintenance,” he says.
“It will be far more sustainable, as the jobs are more permanent and local. The work is more predictable, since the plants will need constant operations supervision, gas will need to be found to feed the big fridges, and maintenance will be required to keep the kit running to meet delivery commitments.”
Cann predicts more trains will operate for longer than the usual 20-year lifespan due to the difficulty in sighting brand-new facilities.
“Their practical life is becoming much longer because it is getting harder and harder to build them. When a CEO decides between a struggle to open a brand-new LNG project or pouring money into an existing one, he or she will probably invest in the existing one,” he says.
“The location will depend on the project – roles for drilling wells and maintaining well infrastructure in Queensland will be located in rural areas. Some management jobs will be located in Brisbane or other major centres. The gas compression station will require a location near the facilities and close to reserves where gas is being extracted.
“In WA, there will be LNG facilities onshore as well as on platforms. The jobs are located around Australia, which is a good thing for families to have opportunities close to where they live.”
Queensland is also central to that emerging success story.
“The world’s first QCLNG project, to take gas from coal seams for conversion into LNG for export, started earlier this year. Dozens of LNG shipments have now left the Port of Gladstone – the very first shipments from eastern Australia,” Fennelly says.
“Such shipments are bringing enormous benefits to Queensland in terms of royalties, estimated by the Queensland Government to be approximately $1.5 billion over the next four years.”
The Australian Mines and Metals Association (AMMA) predicts Australia will become the world’s largest exporter of LNG by 2020, with a sizeable contribution from Queensland.
“By 2020, LNG is forecast to be Australia’s second most-valuable resources and energy export… [Key areas of growth include] hydrocarbon growth and the world-class developments of QCLNG, GLNG and APLNG,” AMMA senior industry policy adviser Tristan Menalda says.
“Even though energy commodity prices are currently at suppressed levels and are likely to remain that way for the short to medium term, there is light at the end of the tunnel for the Queensland energy industry.”
However, policy change is needed to promote and attract long-term and sustainable energy investment.
“If energy companies can compete with an internationally competitive cost-base, as well as having higher labour and multi-factor productivity levels than our competitors, Queensland has a real opportunity to be a premier destination of energy investment,” Menalda says.
“In order to improve our policy settings, we need greater bipartisan support. At a federal level, the government has done well by scrapping the mining and carbon tax… the China Australia Free Trade Agreement (CHAFTA) will expand Australia’s trading relationship with China, already worth close to $100 billion per year, with the resource industry standing to benefit hugely from the deal. All tariffs on resources and energy products will be eliminated within four years. This will benefit the Australian energy industry and the Queensland economy.”
Modest changes to the workplace relations framework modelled by KPMG could also increase investment in the resource sector by up to 8 per cent.
“Such a boost could ultimately prove the difference between a potential LNG project or a coal mine receiving investment and potentially the go-ahead to construct and produce in Queensland instead of the investment going offshore to our international competitors,” Menalda says.
SUPPLY AGREEMENTS CUSHION THE ECONOMIC BLOW
Unlike other commodities, both coal-seam and natural gases are usually sold in as part of longterm supply agreements with energy providers. This ensures there will continue to be demand for gas, even in an economic downturn.
“In Queensland, projects will have to continue to drill gas wells for the foreseeable future but the projects have already sold the gas, so they have to drill,” Cann says.
“The presale of gas makes it easier to economically model their business performance; it is not plausible to shut down the operation. The challenge is, if the cost of the business is well in excess of the revenue, you may see producers making gas at a loss. This is worse than not exploring at all.”
CUTTING COSTS THE SMART WAY
With dwindling revenue and the rising cost of exploration production, it has become more important to save costs.
Fennelly describes the price correction as a sharp reminder to keep a “tight hold” on operating costs.
“Clearly, with the drop in the price of crude oil, companies are adjusting their business models,” he says.
“What might be a surprise for some analysts and media commentators is not necessarily a shock for an industry that is well-established and efficient in managing multibillion dollar investments. Such changes can and do come at awkward times for large-scale investors, requiring sometimes quite significant adjustments to plans and programs.”
Cann suggests savings can be made through better industry partnerships for contractor training.
“A lot of operators have similar models and have to train contractors, but there is very little commonality in the training process. So they have to train and train, and there is lots of collaboration potential to harmonise training and certification,” he says.
“The government could play a stronger role, if they could pull the industry together and encourage it to collaborate. The government can also trim the regulations and rules it imposes on the industry to protect the environment. It comes at a cost, and sometimes the cost is not taken into consideration to tackle the red tape imposed.”
NOW IS THE TIME TO UPSKILL
Cann predicts the increase in LNG trains will fuel demand for a higher degree of skills and services. Growth areas include management, professionals, technicians, trades, operators, drivers, labourers and administration.
“This will be to the tune of at least 13,000 new jobs with less growth in demand for labourers and more for operators,” he says.
For individuals who are construction oriented, if they wish to participate more in the operation of these businesses they would need to expand their skillset in areas where there is demand.
“Studying gas basics and LNG plant operations would give them a leg-up to identify and go after specific jobs that may exist. The volatility of commodity prices presents an opportunity to do this,” Cann says.
“If you look at the list of capital expenditure on projects the list is very small. Aside from the Browse or Arrow projects, there are no big new gas projects currently forecasted or getting ready to launch in Australia. Demand for construction workers is going to be less. Unless the country has some other need for construction workers in another domain, they will find fewer prospects. Retraining is a good new career path.”
He draws on his former experience working outside of Australia.
“In the oil sands of Alberta in western Canada, most of the individuals I spoke to at the time really sought-out the ongoing operational work and not the construction work, because it is short term and volatile. Management can turn off oil and gas projects at any time,” Cann says.
“If you want to have a great career in the industry, the operating side is the far more sustainable side of the business – even though construction seems more resume-building and sexy. If you want a good and long-term career, there is a logic to get on the operational side of the business.”
SAVING MONEY ALSO REDUCES RURAL UNEMPLOYMENT
The skills-push also offers more opportunities to employ Indigenous Australians in remote parts of Australia. RBY Projects provides contracting services to the mining industry, and has seen positive examples where Indigenous employment has benefitted both the community and business.
Managing director Derek Flucker says the gas industry has only really begun to tap into the savings to be made from hiring local Indigenous Australians, instead of relying on a costly fly-in fly-out (FIFO) workforce.
“I know with the recent downturn, our business does not do any FIFO. The number of flights to these areas has decreased dramatically due to the cost incurred because of it,” Flucker says.
“It is not just about savings but also bringing money back to the community. It is really important the industry starts to engage with Indigenous groups that want to be a part of projects to allow Indigenous people to earn their own money, so they are not reliant on the welfare system. I have seen improvements where Aboriginal people who have worked for us have got off on the dole and got training and a job, bought a house and sent their kids to good schools.”
MINING COMPANIES LEAD THE WAY
Flucker, who is also chairperson of the Aboriginal Enterprises in Mining Exploration and Energy (AEMEE), praises proponents behind iron ore projects in Western Australia for effectively engaging with Indigenous people.
“In WA, Rio Tinto and Fortescue Metals Group are some of the companies in the West that have set strong targets around business development and employment targets for tier-one EPC contractors and how they need to perform,” he says.
“Queensland has not had a strong tradition of that. The oil and gas industry here is still learning a lot from the business work I do with them. We recently saw Origin release their reconciliation action plan, which recognises the indigenous people in the country and their involvement in Origin’s projects.
“QGC has a strong commitment to Indigenous engagement and has achieved some really good outcomes in this area. Both Origin and QGC have Indigenous Participation Plans, which places an expectation on contractors to perform well when it comes to Indigenous engagement.”
Flucker recently led research that found engaging entire Indigenous businesses dramatically increases the number of Aboriginal people working on projects.
“There is proven research which indicates that where there is an Indigenous company there is a bigger number of Indigenous people employed. Non-indigenous companies do not know how to do it so well. Our business employs 35 to 40 per cent Indigenous staff.”
“By 2020, LNG is forecast to be Australia’s second most-valuable resources and energy export…”
LINKING INDIGENOUS COMPANIES WITH GAS PRODUCERS
There are examples of successful Indigenous business that have successfully bid for work, with many of them turning over between $100,000 and $500 million a year.
“There is no excuse for not being able to find them, as there are many databases that have a list of these businesses including Black Business Finder, which was developed by the State Government and Supply Nation that has a significant database,” Flucker says.
“The best examples of where Indigenous business have achieved some great results for Indigenous employment and economic wealth is where the mine or the oil and gas company develops a contract specifically for an indigenous contractor. I experienced this first hand at Century Mine 15 years ago, where our organisation bid for a contract against other Indigenous contractors. We eventually won this contract and we generated 80 per cent local employment from the Doomadgeee community, which had a 95 per cent unemployment rate. This was a real success story and it would be great to see other companies setting up similar contracting strategies in Queensland.”
Richard Szabo is a freelance media specialist with nine years’ experience in digital and print media. He was named winner in the best business or finance story category of the 2012 MACCAS Gold Coast Media Award and contributes stories to APRS Media, Projectory and The Vision Times.