Oil and gas a major driver, but work ahead

WITH more than $70 billion in future oil and gas projects in Western Australia on the cards, the state is well placed to develop its massive reserves, which in recent times have become commercially viable to develop.

The positive investment outlook has made many companies servicing the oil and gas sector very bullish on what could be delivered over the coming decades.

Mermaid Marine Australia managing director Jeff Weber sees the biggest opportunity in liquefied natural gas (LNG) projects.

"The whole story for WA, I think, is gas," Mr Weber told a recent WA Business News boardroom forum.

PricewaterhouseCoopers partner and petroleum industry adviser, Nick Henry, spoke for many people in the sector when he said, "the outlook is very strong in LNG and WA has the potential to be a major global player".

Their confidence has been brought on by the strength in petroleum prices, even though prices are well below peak levels, and the outlook for big projects.

This includes current developments such as the North West Shelf Venture's LNG expansion and Woodside's $12 billion Pluto LNG project, and the prospect of future developments such as Woodside's $20 billion Browse LNG project and Chevron's $20 billion Gorgon LNG project, which could transform the sector in the state.

The federal government's proposed emissions trading scheme and the continued skilled labour shortage are two factors that put a question mark over the state's ability to deliver on its oil and gas potential.

If WA is to gain a competitive advantage on a world scale, industry players say there will need to be continuity in the development of these massive projects, which historically has been sporadic.

Engineering group Clough's chief executive John Smith, who was interviewed after the forum, said although he was confident that oil and gas would be a major driver of economic success in the state, globally WA was a young market.

"Given the pipeline of LNG projects you see coming up in Australia I would hope we could build up the expertise we need, then for Perth it will become a volume issue, if we can produce the volume, where historically expertise has been the issue," he said.

"I think though that historically if you look at Perth the work has been too sporadic to have any continuity.

"Looking forward I would think if the number of [LNG] projects awarded to the eastern states was anything to go by, I would have hoped we could develop that expertise locally and then begin to export that expertise."

From his perspective, Mr Henry said developing expertise was crucial for WA to capitalise on its "extremely prospective" gas resources.

"Prospectivity for gas as a green fuel is great and the value of gas has gone up significantly, and WA is very well endowed with gas," he told the forum.

"Notwithstanding that, we've had huge discoveries of gas that have remained undeveloped.

"Seeing that one of the majors I do work with has spent 10 per cent of its global budget in WA over the last 12 months and they're still out there looking for more, I think the outlook is very strong.

"It's up to us, the reserves are there."

Neptune Marine managing director Christian Lange said it was an ideal time to be a subsea engineering solutions and service provider to the oil and gas industry in WA.

"Our view tends to be, and particularly my view, is that WA has seen such an enormous boom right now because the resources riches tied to LNG versus the degree of difficulty in resourcing those projects has now changed...with the price of gas and the price of oil, all of a sudden it's attractive," he said.

"Logistically though, Australia is very isolated, which makes everything more expensive.

"That said, though, it's a fantastic time to be in business. We have an opportunity here in the state, we have an enormous oil and gas resource and we do need to be competitive; so the government does need to start looking at infrastructure.

"I guess from a government perspective I still cannot believe that, apart from roads, infrastructure in this state is pretty poor.

"That needs to be dealt with. I don't think it's the state government's role, or any government's role, to generate surpluses and that seems to be the main focus."

Mermaid Marine's Mr Weber said that, like others in the sector, the offshore oil and gas marine services provider has had to adapt to a rapidly maturing market in Australia.

He also called on the new state government to invest more in infrastructure to facilitate the growing sector.

"WA is a gas story. There are bits of oil here and there, but unless somebody finds a big thumper at the moment, they're four- to five-year developments," he said.

"The thing about gas is there's a long lead time to get into it, but it runs for 20 years.

"The whole LNG industry has matured very quickly and the price is going up. Demand is still outstripping supply at the moment.

"I think there will be a gap in supply for the next five to 10 years, and these little blips that we have in the global economy are not going to stop these major scale projects.

"The scale has grown dramatically over not even five years, probably the last two or three years, so we need to have a vision at a state level for the north-west because a lot of the wealth that we enjoy down here is created up there."

Vice-president of facilities and engineering at Technip Oceania in Perth, Nick Palmer, said although WA was an attractive option for development with an abundance of oil and gas reserves, its isolation deterred many foreign investors.

"From an international perspective, it's extremely difficult to build projects in Australia," he told the WA Business News forum.

"In terms of pulling engineers together as much as you need to - you don't always have to of course - right down to the need of physically building it in the country. It's not easy.

"Technip is coming back though, we all have to. I mean, let's not forget that the cost of developing a plant has gone up 100 per cent in four years. That in itself changes the economics quite dramatically."

Mr Palmer said WA still had to compete with Singapore and Malaysia to be a regional centre.

"You could argue that in terms of the numbers of experienced people they could find, here would have been a better location. Obviously that's not being seen by the big multi-nationals," he said.

In order to develop Perth as a centre of excellence DSPComm chief technical officer Manjulla Ellepola said further investment was required to boost the state's technological profile, particularly in the subsea oil and gas market.

"If Perth is to be established as a technology centre and not just for getting the gas and oil out of the ground and exporting it, I think there has to be some sort of cluster of companies in that field here," he told the forum.

"The government should provide a subsidy for technology companies and promote high-tech development."

However, Mr Lange believed WA's remoteness made it difficult for it to become a centre of excellence.

"In the oil and gas industry a lot of people are moving around the world on a fairly constant basis and you can't do that from very high-cost centre," he said. "As much as Perth would like to be seen as the centre of excellence, I think in certain aspects and in time, it may be. It's still logistically a nightmare in comparison to Kuala Lumpur or Singapore."

Modular Engineering Company director John Davies disagreed, saying that despite WA's isolation the state was an attractive investment option to global companies.

"We're a small company, but we've been involved in most of the projects going on, so I'm getting emails from the UK, India," he told the forum.

"What I'm seeing at the moment is a lot of attention from international companies. So there is a lot going on at the moment for us to take advantage of the opportunities that are available at the moment.

"Modular Engineering is in a niche market, but really it's only capacity at the moment that is the only restriction, the capacity to take on the work available."

AMC Management (WA) general manager Richard Clark, who manages the common user facility at the Australian Marine Complex at Henderson, said capacity issues in WA were holding it back from becoming a major international player.

"If there's not the infrastructure here, all these companies and all these businesses will go somewhere else," Mr Clark said.

"Where the government needs to help is in infrastructure to support the local economy. And you can see that with what happened with Inpex going to Darwin.

"Why would they run a 900-kilometre pipeline (from the Ichthys gas field) to Darwin? They would only because they can get the project up and running guaranteed, within a certain budget, in a certain location because they are dealing with the NT government, which has the capacity to work closely with them."