23/10/2012 - 10:01

Analysis: Resources industry gets a look at total outsourcing

23/10/2012 - 10:01

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A small ceremony in South Korea last week will eventually lead to a big debate in Australia about who benefits most from resource development in this country; Australians or foreigners.

Until now such a question related solely to ownership of assets with foreign capital generally welcome because local investors lack the wealth to pay for multi-billion dollar mines and liquefied natural gas projects.

The strongest argument in favour of permitting 100% overseas ownership was that it created local jobs.

That claim has started to weaken after the cutting of first steel on the Prelude LNG production barge in a shipbuilding yard run by Samsung Heavy Industries in South Korea.

At its peak, work on what will become the world’s biggest floating object, will employ 5000 South Koreans, with another 1000 working on associated equipment such as mooring and subsea well systems.

When complete and fully loaded the 600,000 tonne barge, which is roughly six times the size of the world’s biggest aircraft carrier, will be parked off the Kimberley coast, extracting and liquefying gas for export via smaller, conventional LNG carriers, to Asia.

Whether the Prelude ever sees the WA coast is one interesting question. Whether it ever creates more than a handful of jobs in Australia is the one which will spark the political debate about whether what’s good for foreign investors is also good for Australia – or whether total outsourcing is a step too far.

Shell, the oil giant behind the Prelude experiment in floating LNG production, is justifiably proud of what it is seeking to do in a technical sense.

Prelude is a world first. It will convert remote and relatively small deposits of gas and petroleum liquids into commercially valuable products, and it will potentially blaze a trail for others to follow.

The numbers underpinning Prelude are impressive. The 488 metre barge will be permanently anchored (with 25 years defined as permanent) in 250 metres of water, extracting the three trillion cubic feet of gas from the Prelude and Concerto gasfields, converting it into at least 3.6 million tonnes of LNG a year – roughly the size of a single “train” in an onshore LNG plant.

Shell claims, and Australian governments (state and federal) agree, that without a floating “solution” the gas in the fields it discovered in 2007 and 2009 would be “orphaned”, destined to never be developed because it is too remote and too small to justify onshore LNG production connected by submarine pipeline.

What is not being discussed, yet, is whether Shell’s brave experiment in floating LNG production will become the standard model for the future of Australian LNG sourced from offshore gasfields.

ExxonMobil and BHP Billiton are watching the Prelude project closely with an eye for a similar floating option atop their long-dormant Scarborough gasfields off the Exmouth coast, possibly superseding a pipeline-to-the-coast option.

Woodside, with Shell as its major shareholder, is also watching closely to see whether a “floater” makes better business sense than the onshore processing route proposed for its Browse project.

From the perspective of leaving a small environmental footprint floaters appear to be an appealing option.

From an ease of management perspective they are also appealing because it means avoiding local protestors and bypassing Australia’s high-cost domestic economy and heavily unionised workforce.

But, from a deeper national interest perspective “floaters” are a debate yet to move out of the corridors of power in Canberra, Perth, or the head office of Shell.

Paying tax on the gas liquefied and exported is a positive for Australia, but that’s about the limit of the long-term benefit of floating LNG production.

Few, if any, blue-collar jobs will be created. Barges the size of Prelude will never come near an Australian port. Essential supplies and crew requirements will be met just as easily, and certainly more cheaply, from Singapore or other Asian ports.

In a way the floater question is a logical extension of the fly-in, fly-out debate which annoys Australians keen to see the centre of the country developed with the building of permanent towns, not short-term camps.

Prelude, which is scheduled to arrive on site in 2016, will trigger the widespread community discussion which ought to be starting now.

The multi-pronged challenge for Shell, and the politicians who approved the Prelude project, is to justify a project which does little for local job and wealth creation, and explain why it is a good thing that a foreign company should be allowed to “parachute” in a totally foreign-made and foreign owned LNG production facility.

Unless those questions relating to the first floater are satisfactorily answered the next look-alike project at Scarborough, Browse, or elsewhere, will face a much harder sell because even if something is technically possible it is not necessarily good.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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