10/09/2009 - 00:00

Engineers seek more LNG opportunities

10/09/2009 - 00:00


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Giant gas projects such as Pluto and Gorgon deliver huge benefits to WA industry but could the state do better?

Engineers seek more LNG opportunities

APRIL 2 2001 was a special day for Western Australia's engineering fraternity. That was the day Woodside announced that the engineering work on the North West Shelf venture's train 4 expansion - one of the biggest resources projects of its time - would be undertaken in Perth.

It was the first time anywhere in the world such a plant had been designed and built in its country of origin.

Woodside's engineering consortium subsequently assembled a team of 350 engineers and 450 staff in Perth to execute the $280 million contract.

Local engineers saw this as the culmination of a gradual build-up of engineering skills and knowledge and hoped it would be the start of a trend that would help Perth rival the established centres for liquefied natural gas (LNG) engineering - Reading/London, Houston and Yokohama.

However, it hasn't panned out that way. Most of the design work on subsequent LNG projects, and particularly on the processing trains that are at the heart of LNG projects, has been undertaken overseas (see table).

Perth engineers have not been left empty handed. There has been plenty of work on jetties, wharves, accommodation camps and other supporting infrastructure.

Local engineers have also won a lead role designing platforms, pipelines and other offshore facilities.

But they have been unable to win the high-value process design work, which is the pinnacle of achievement.

Aside from the loss of hundreds of potential jobs in Perth, it has also become more difficult to develop the skills needed for ongoing maintenance work on existing LNG plants.

And it has made it more difficult for local steel fabricators and other suppliers to win work on big LNG projects, because the procurement function usually resides in the same location as the design team.

Could this change in future? Could a string of LNG projects in the region, combined with investment in energy research and some strategic government support, enable Perth to move up the value chain?

WA Business News has spoken to many engineers in Perth who are frustrated by the current state of affairs but are reluctant to speak publicly for fear of upsetting their current employers.

However, one engineer summed up their views when he said: "We could have 30 LNG trains built in Australia and none of them will be designed here".

Liberal Party MP and former think tank economist Mike Nahan shares this frustration.

"It is my strong view that if we are talking about building on our resource base to build a new industry with export potential, I think it's the design of the (LNG) trains and other high-end engineering we should focus on," Dr Nahan told WA Business News.

He believes that, historically, there has been too much focus on trying to foster blue-collar manufacturing jobs.

"Government for too long has been focused on the metal-bashing part of it," he said.

Dr Nahan emphasises that projects need to be internationally competitive and governments need to ensure projects actually proceed, but says more can be done.

"We have to make a strategic decision and use the leverage of our gas resources to put pressure on them to design the trains in Perth," he said.

Beyond the immediate job opportunities, Dr Nahan believes this would build the state's intellectual capital and give WA the capacity to develop allied industries.

One explanation of WA's failure to secure more engineering design work is provided by a leaked 2005 report written by the Industry Capability Network of WA, a government-funded agency that works through the Chamber of Commerce and Industry WA.

Titled 'Australian LNG Engineering Design: An Opportunity Lost?', the report states that international engineering companies "appear to be very reluctant to invest in Australia to do their global LNG engineering work".

"It is probable that engineers with overseas LNG centres of technical excellence would see little advantage in doing work in Perth in collaboration with Australian-based engineering groups, who could become their competitors in the booming global LNG market," the ICN report said.

"Maintaining the status quo of the three established centres of technical excellence seems preferred at this time. Australia is effectively being eliminated as a player."

Project developers such as Woodside and Chevron insist they are doing everything possible to maximise local industry participation.

They say that international engineering groups are more competitive on price and have access to a much larger pool of skilled workers, meaning they can deliver projects in a more timely and assured manner.

They point to low unemployment and rising contracting rates as evidence that local industry is on a winner.

The project developers also emphasise that long-term business opportunities from servicing and maintenance of LNG projects far outweigh opportunities during the construction phase.

CCIWA chief executive James Pearson believes local industry has plenty of opportunities, not just on Australian projects but international projects.

The ICN, for instance, is running a program that seeks to hook local suppliers into the global supply chain of international engineers.

"What we are seeing is the globalisation of parts of WA industry," Mr Pearson said. "That reflects the reality of the LNG industry."

He believes there needs to be a wide definition of local content. LNG project developers not only award contracts for engineering design and metal fabrication, they employ apprentices and invest in local universities and research institutions.

The capital intensive and specialised nature of LNG plants means there is a substantial amount of work that cannot be done in Australia.

There is also a large amount of work, particularly for support infrastructure and plant assembly, which has to occur locally.

The critical 'swing' factor is the work that can be done in either Australia or overseas.

Woodside's train 4 project, which was the high point for local content, had 66 per cent Australian content.

Perhaps more significantly, 94 per cent of the work that could be done in Australia was undertaken here.

Woodside does not release local content data for more recent projects like train 5 and Pluto, but it is known to be much lower.

That mainly reflects the global trend to build LNG plants in modules in Asian construction yards, rather than the old 'stick build' approach.

As a result, local content in Australia will never return to the level achieved on train 4.

It also seems inevitable that, even in a best-case scenario, Australia will have to share the work on LNG projects.

For instance, Japanese company Inpex and its contractors have 250 staff in Perth working on the Ichthys LNG project but they also have engineers in Yokohama, London, Oslo, Tokyo and Darwin.

Similarly, there are more than 1,000 people in Perth already working on the Gorgon project, which is tipped to get formal approval this month.

Once that happens, there will be even more engineers working on the project in Houston, London, Singapore, Jakarta and Yokohama, as well as Perth, not to mention construction workers throughout Asia.

Given the massive scale of these projects, bringing just a small portion of work back to WA would be significant.

Woodside's Pluto project, for instance, is budgeted to cost $12 billion. Bringing an extra 1 per cent of that work back to WA would add $120 million to the local economy.

On Gorgon, the stakes are even higher. Speculated to cost $50 billion, each 1 per cent is worth $500 million.


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