Fire is out on Australian LNG jobs

The North West Shelf Venture’s $2 billion phase V project, which received formal go-ahead last week, is expected to generate only half the jobs of the Venture’s last big expansion.

The project will also have much lower Australian content than the $1.6 billion train 4 expansion, raising concerns that Perth is rapidly losing its chance to become a global player in the LNG engineering market.

“Australia is effectively being eliminated as a player,” according to a paper prepared by the Industry Capability Network, a body charged with maximising local content on big projects.

“The major engineering companies … now appear to be very reluctant to invest in Australia to do their global LNG engineering work.”

Lead engineering contractor Foster Wheeler is running the phase V expansion from its Reading office in the UK.

The ICN expects the ‘downstream’ engineering work for the $11 billion Gorgon project to be done overseas, in lead contractor Kellogg Brown & Root’s home town of Houston, though the smaller ‘upstream’ work will mostly be done in Perth.

ICN says sending this work overseas “will significantly weaken Australia’s ability to compete in the rapidly expanding global LNG plant design market”.

In contrast to the new projects, Kellogg employed about 400 engineers in Perth to manage the train 4 expansion.

ICN is concerned that sending engineering work overseas will not only lead to direct job losses but also make it harder for local suppliers to win contracts.

Perth company Woodside, which operates the North West Shelf Venture, says local industry will be given “full, fair and reasonable opportunities” to participate in the phase V expansion.

However, it has acknowledged there will be a big drop in local jobs and local content.

It expects the on-site workforce on phase V to peak at 1,200 people in mid-2007, though it could be as high as 1,500. By comparison, the on-site workforce on train 4 peaked at nearly 2,400 people in 2003.

Woodside also expects Australian content on phase V will be about 45 per cent of total spending, well below the two-thirds Australian content achieved on train 4.

This reduction effectively takes $400 million of spending out of the Australian economy.

With Woodside opting for a new construction strategy, much of the phase V plant is expected to be built in modules in Asia.

It has attributed the change to the shortage of skilled labour, though industry sources have speculated Woodside is also concerned about industrial relations risk.

State Development Minister Alan Carpenter told WA Business News the State Government was well aware of community expectations regarding the level of local content in resource projects.

“I have made it clear to Woodside and the other partners that they need to do all that is humanly and commercially possible to maximise local content in the phase V expansion project and that we’d be very unhappy if they don’t,” Mr Carpenter said.

The Australian Steel Institute’s state manager John Yeudall believed Woodside had not done enough, claiming it had used the skills shortage as an excuse.

The Institute will be releasing a government-funded study later this month, which assesses the competitiveness of the local steel fabrication industry.

“(Woodside) should be doing what we are doing,” Mr Yeudall said. “We don’t believe they have gone into it in that detail.”

He argued that local suppliers were competitive if all factors, including transport, rework, supervision, risk and maintenance, were taken into account.

The formal go-ahead for the phase V expansion confirms the North West Shelf’s status as Australia’s single largest resource project.

The expansion will boost exports by $1 billion and royalty payments by $800 million per annum.