It is becoming increasingly clear that Western Australia will be stretched by a spate of massive gas projects over the next few years.
PREMIER Colin Barnett doesn’t like to use the term boom, preferring to talk about a period of sustained growth he envisages for Western Australia.
The problem with a boom is that it’s always followed by a bust, if history is any guide.
Following this logic, one of the challenges for policy makers is to manage growth so that it is sustainable.
Nationally, the Reserve Bank works hard to achieve this objective by managing the economy’s monetary levers.
In a resource-rich state like WA where investment has traditionally been driven by commodity markets, it is much harder to achieve the same goal.
In fact, state governments normally do everything in their power to maximise economic growth, particularly by encouraging investment in big projects.
WA is no exception, but are we heading for too much of a good thing?
In particular, will the spate of liquefied natural gas projects coming over the horizon create so much work that the state loses long-term opportunities?
To try and answer this question, we need to remind ourselves about the number and scale of LNG projects.
When Perth company Woodside approved its Pluto LNG project a couple of years ago, the $12 billion budget set a new record for a single resources project.
A second project already underway, Apache Energy’s Devil Creek gas operation, barely rates a mention because of its comparatively low $1 billion budget.
Chevron’s newly approved Gorgon project puts all others in the shade. Estimated to cost $43 billion and employ 10,000 workers, construction of the project officially commenced last week and will continue for another five years.
During that time, it is possible that six more giant LNG projects will proceed in the region, including ExxonMobil’s PNG LNG project and Inpex’s Ichthys project in Darwin.
In WA, Woodside plans to develop at least two more processing trains at its Pluto LNG plant at Karratha and Chevron is planning its Wheatstone project at Onslow.
These projects are aiming for a final investment decision in 2010 or 2011, which means they will all be looking to proceed to construction around the same time.
In addition, Shell is assessing the development of a world-first floating LNG plant for its Prelude project off the Kimberley coast.
And in central Queensland, global companies Shell, BG Group, Petronas and ConocoPhillips – which paid billions of dollars to acquire coal-seam gas resources – are racing to proceed with their own LNG projects.
The Browse LNG project can now be added to this long list, after the state and federal governments decided last week to implement their “use it or lose it” policy.
The joint owners of the Browse Basin gas fields have been told they must come up with a firm development plan within 120 days and make a final investment decision by mid 2012.
This was music to the ears of 50 per cent owner Woodside, which has been pushing hard to proceed with development of an LNG plant at James Price Point near Broome.
In contrast, it creates a real issue for Chevron, Shell and other minority owners, which had put Browse much lower on their priority list.
If the government sticks to its guns on Browse – and there is every indication that will be the case – the project developers will confront a problem that will be writ large for Australia.
There are not enough workers or industrial capacity to service these projects domestically.
Each of them will employ thousands of workers and contractors during the construction phase.
Australia’s labour market is already tight, and especially so for the skilled workers needed on large, complex projects like Gorgon.
How will we cope? Just like the last boom, some workers will come from overseas, and many will be lured from other industries, which will suffer their own labour shortages.
But more than anything, the work will be sent offshore. This is already happening to a substantial degree. The Pluto and Gorgon LNG plants, for instance, have been designed by engineers in London and Houston and will mostly be built in construction yards in Asia.
As the number of projects rise, it is inevitable that the amount of work done offshore will increase.
For each project developer, sending work offshore makes perfect sense, especially with a high Australian dollar making imports cheaper.
But for WA it erodes an enormous strategic opportunity.
The state will experience a frenetic construction boom, and afterwards we will reflect on the missed opportunity to develop skills and expertise that would provide a long-term competitive edge that lasts for decades to come.
