If you are a ‘glass half-full’ person, the LNG boom has presented great opportunities for local industry, but not everyone is happy.
If you are a ‘glass half-full’ person, the LNG boom has presented great opportunities for local industry, but not everyone is happy.
Woodside’s Pluto LNG project created a total of 15,000 jobs and $7.6 billion worth of work for local industry over its five-year construction period.
Chevron’s Gorgon project will have a peak workforce of 5,500 people and expects to place orders worth more than $21 billion with Australian businesses.
What’s not to like about the oil and gas boom?
Well, the critics would like those numbers to be even higher. They believe 50 per cent Australian content, which is roughly what most LNG projects are achieving, is not good enough.
The Barnett government has put commerce minister Simon O’Brien on the case, with a mandate to urge and cajole a better outcome for local suppliers.
And the Gillard government has put former Queensland premier Peter Beattie on the case, appointing him last year as the Resource Sector Supplier Advocate.
In each case, there have been a few policy reforms, such as Canberra increasing its scrutiny of Australian Industry Participation plans and requiring major projects to publish summaries of their AIP plans.
Mr Beattie has also set up working groups, which are currently drafting papers on “How to win work” and “Innonation”.
But there are no silver bullets, a point acknowledged by Mr Beattie after his appointment.
For most local businesses, the key to their success does not lie with policy decisions. It rests on their ability to identify a market segment where they can compete against, or work with, very powerful international suppliers.
Take GE Oil & Gas as a prime example. In the past two years, it has won a succession of massive supply contracts on LNG projects:
• $1.1 billion of power generation and subsea equipment for Gorgon.
• Gas turbines and compressors for Wheatstone.
• Two compression trains for Shell’s Prelude development.
• $1 billion of compressors and subsea production systems for the Ichthys project.
• $150 million of subsea manifolds and well systems for Apache’s Julimar project.
With so much work in this part of the world, it made good sense for GE to invest $100 million in a maintenance and training centre at Jandakot.
The new facility won’t replace GE’s established manufacturing centres in Italy and the US but it’s a handy step in building local capability.
FMC Technologies is another big international supplier that is doing well in the Australian market.
Its recent wins include a $325 million contract to supply subsea production systems for Wheatstone, a $150 million supply contract for Woodside’s Great Western Flank development, and a contract to supply a wide range of subsea equipment for Prelude.
FMC has also made a small investment in WA, establishing a service facility at the Australian Marine Complex at Henderson.
A range of WA businesses are targeting subsea engineering as a major growth opportunity.
ASX-listed Neptune Marine Services grew rapidly to be a challenger in this space but has spent the past two years restructuring after being hit by the GFC.
Private firm Velocious, a winner of WA Business News’ 2011 Rising Stars award, is another company targeting this segment; its aspiration is to become the state’s “leading authority on innovative subsea engineering solutions”.
The wide gap between these companies and the likes of GE and FMC is a reality check for local industry capability.
Another market segment that is immensely important is the engineering design for LNG plants. However, experience in recent years shows that this work, along with the critical procurement function, continues to be driven from centres like Houston, Reading and Yokohama.
For instance, FosterWheeler was the lead engineering contractor for the North West Shelf venture’s train 5 expansion and Woodside’s Pluto LNG project, yet it never established a meaningful or lasting presence in Perth.
Bechtel, which is the lead engineering contractor on the giant Wheatstone project, seems to be following a similar path.
It has just 20 engineers in WA and 120 staff in total, according to data compiled for WA Business News’ Book of Lists.
Sydney-based WorleyParsons (which was FosterWheeler’s junior partner for the train 5 and Pluto projects) remains the largest engineering firm in town, with 2,000 engineers in the state.
Its success has been helped by the diversification of its business across oil and gas, mining and infrastructure, as illustrated by recent wins.
Worley has secured a $325 million construction management contract at Wheatstone, a $250 million EPCM contract for the Anderson Point iron ore port and a $65 million commissioning contract, through the Transfield Worley joint venture, on the North Rankin B platform.
Other big players in the engineering sector include SKM, Hatch and KBR, along with Perth firms Calibre Global, Clough and Lycopodium.
Of the local firms, Clough is the only one to have a primary focus on the oil & gas sector; that has enabled it to win plenty of work, though its ability to translate that into consistent profits has been lacking.
New chief executive Kevin Gallagher is looking to change that with a focus on delivering good results for both customers and shareholders.
Clough has an order book of $2.5 billion, with many of its contracts won in partnership with international firms.
For instance, the BAM Clough joint venture has a $400 million contract to design and construct the product loading facility at Wheatstone and has contracts worth $510 million for a module offloading facility and jetty at the Ichthys project at Darwin.
Clough has also won a $350 million contract in its own right for the offshore hook-up and conditioning at Wheatstone.
One of the largest contracts to have been awarded by any LNG project in Australia was the $2.3 billion package won last year by US contractor CB&I and its Irish joint venture partner Kentz on Gorgon.
About 2,200 workers will be employed under their mechanical, electrical and instrumentation contract.
CB&I and Kentz operate globally and have been active in Australia for many years but see the current period as an opportunity to build their presence here.
Kentz Australia country manager Brian Kelly said the MEI contract was the company’s third contract win on Gorgon. It also won a telecommunications package and teamed up with Thiess and Decmil to build the accommodation village.
