Hertel’s $90m deal a win for local content

MALAGA-BASED contractor Hertel Modern has secured a key contract on the Chevron-operated Gorgon LNG project, a win that will help deflect some of the political heat around local content.

While the $90 million, three-year contract for cryogenic insulation work may not be the biggest awarded on the $43 billion project, Hertel Modern was likely to have beatengenuine international competition in a tightly contested market, especially as Gorgon is the biggest of its type anywhere in the world.

While the win adds to an estimated $10 billion in local content contracts awarded by Gorgon, it has failed to stem the tide of criticism about the level of fabrication work being conducted offshore.

In July, a $US2.3 billion contract awarded to a joint venture by two foreign firms – CB&I and Kentz – for structural, mechanical, piping, electrical, instrumentation and commissioning support, highlighted that much of the expected local content was work that could not have been done elsewhere.

There was also speculation, however, that the July contract was turned down by Australian-based firms due to the risk created by its size and difficult logistics associated with Barrow Island.

The Australian Steel Institute has been lobbying throughout the year for more work to flow to local fabricators, and unions have also mounted their own campaign, including a rally this week and a retail-style advertising campaign.

The federal government last week launched the Resources Sector Supplier Advisory Forum, a group of industry, union and government figures that includes Colin Beckett, the Chevron executive directly responsible for the Gorgon project.

Earlier in November, the federal government also announced extra funding for the Industry Capability Network to help Australian businesses win supply contracts on major upcoming resources projects such as the Browse LNG development.

The state government has also been actively seeking to stimulate local work and deflect criticism that Western Australian companies are missing out, including on Chevron’s more recently announced Wheatstone project near Onslow. 

“We are working very closely with Chevron on local content on the Wheatstone project,” Commerce Minister Simon O’Brien said in response to union calls.

“My office meets with them every two weeks; they have to report very regularly on contracts they have given out, and if contracts have not gone to a Western Australian company they must justify the choice of a foreign company.

“We demand an even playing field for our companies.

“We do not mandate a percentage of local content.  Western Australia is thriving on international trade; it would be counterproductive for us to put in place barriers to trade.”

Hertel Modern expects about 200 people to be employed by the contract, which is principally insulating the LNG plant’s cryogenic systems, with most of the fabrication to be undertaken at its Malaga headquarters.

Some additional work will take place at the Australian Marine Complex at Henderson from where the group’s work will be barged up to Barrow Island, reducing the costly alternative of conducting work on site. 

Hertel Modern managing director Andrew White said the group had the expertise to conduct the work but needed the financial muscle of Netherlands-based Hertel to convince Gorgon procurement to commit to a local provider.

Hertel bought 51 per cent of what was Modern Industries last year.

Mr White said the win would allow Hertel Modern to gear up for a significant amount of Australian LNG work to come, with a plan for significant training to take place so the experience the company gained from work dating back to the 1980s – with Wesfarmers’ LPG plant and the original North West Shelf LNG plant – can be transferred to a new generation.

“This area is quite specific and we want to make sure we are building and skilling up the local workforce to hit the projects that are coming,” he said.

Hertel Modern is due to commence the Gorgon contract for the delivery of paint, insulation and fireproofing services in early 2012. It expects about 20 trainee positions will be created by the work.

“The award of this important contract to our Malaga-based company is a great boost for our workforce and will benefit not only our growth but also our suppliers in the area,” Mr White said.

“Our experts will be able to train new workers in the highly specialised areas of cryogenic insulation and fireproofing applications. It will also help us grow our capability and develop the reputation gained in the Australian LNG industry since the early 1980s.”