The State Government is hosting an offshore oil and gas jobs summit this week. Mark Beyer previews the key issues.
WHEN union boss Jock Ferguson addresses the jobs summit tomorrow, he might want to start by quoting a traditional adversary, Woodside chairman Charles Goode.
“While globalisation is part of commercial life today, I believe there is a line to be drawn by the government at some point with respect to the national interest.”
Mr Goode uttered those words in 2001, when Perth-based Woodside successfully lobbied the Federal Government to oppose Shell’s controversial takeover bid.
For many observers, one of the critical tests of national interest is whether project developers maximise opportunities for local industry participation.
Mr Ferguson, State secretary of the Australian Manufacturing Workers’ Union, believes the business community has failed that test.
His concern about the lack of local content opportunities, specifically on Woodside’s Enfield project, was the trigger for the jobs summit.
There are many variables in project procurement, and often local firms are simply not capable of supplying the required goods.
Where they do have the capability, the reality is that price is often the key factor.
So what price do we put on the national interest?
Should project developers be prepared to pay a little more if it means they can buy locally?
If so, is 5 per cent an acceptable margin? What about 10 per cent or 15 per cent?
The participants in tomorrow’s jobs summit would do well to ponder these questions rather than mouthing cliched platitudes about long-term planning and shared responsibility.
They could also look at the state of play among engineering fabrication firms, which have to cope with very wide cyclical swings in their work volumes.
Ausclad Group of Companies, Fremantle Steel, Pacific Industrial, Park Engineers and Thiess subsidiary BOS Australia are now on a big upswing, to the point where supplies of skilled labour have become an issue.
The work is coming from big projects such as Newcrest’s Telfer gold mine, Rio Tinto’s HIsmelt iron project, the Burrup Fertilisers project and even the Phillips LNG project in Darwin.
Woodside’s Train Four expansion also generated substantial work for local engineering firms.
One of the biggest winners from the Train Four project was United Group, which worryingly has chosen this year to wind down its fabrication workshop in Kwinana.
At its peak, United employed 600 people at its three workshops.
It has already sold one workshop site to a property developer and the remaining workshops are operating at a very low level of activity.
“The market is just not there to sustain all these workshops,” United managing director Richard Luepen said. “We are seeing more imported steel product. The imported steel can be landed a lot cheaper than the local product.”
“It was a very large fabricated steel production facility, we just don’t think that it’s sustainable.”
Mr Luepen said United’s aim was to focus on higher value, sustainable and value adding work.
He said local manufacturers held a quality advantage 10 or 15 years ago, but the quality of imports has improved and their price had fallen.
“We don’t see how that end of the manufacturing industry is going to compete.”
United is not a one-off.
Transfield and ABB, which also operated large fabrication workshops, pulled out of the WA market during a big downturn three years ago.
In the meantime, State and Federal governments have poured $200 million into a world-class ‘common user facility’ at the Australian Marine Complex at Jervoise Bay.
The facility was designed to facilitate local fabrication and assembly, particularly modules for the offshore oil and gas industry.
It was effectively completed nearly a year ago but so far has attracted only a handful of jobs.
The biggest was Apache Energy’s $6 million Linda platform, an unmanned gas production facility recently shipped to the State’s North West.
It was fabricated at Ausclad’s workshops in Kwinana before being assembled at the common user facility, which easily accommodated both the substructure (equal to nine buses end-to-end in height) and the topside (equal to 5.5 buses).
Ausclad will be hoping its success with the Linda platform will generate more work in the oil and gas sector.
However, the two major offshore oil and gas projects currently under way illustrate the challenge facing local industry.
Woodside, which was acclaimed for maximising local content on the Train Four project, has sent most of the work for its $1.5 billion Enfield project overseas.
Most contentious was its decision to issue tenders for the ‘topside’ modules as a single package.
This effectively ruled out local suppliers, which had been seeking to supply some, but not all, of the modules.
Most of the contracts for Santos’ $480 million Mutineer project have also been awarded to overseas suppliers.
It is understood Santos has been seeking to bring in local firms as second-tier suppliers, but declined to provide any details to WA Business News.
Against this backdrop, Chevron Texaco’s $6 billion Gorgon project is being watched closely.
Chevron Texaco recently short-listed seven consortia for the all-important engineering, design, procurement and construction contracts.
To facilitate contact between potential suppliers and the tenderers, it has provided online links via its web site.
Australian Steel Institute State manager John Yeudall said Alcoa provided a good example to other project proponents seeking to maximise local content.
It attracted an estimated 400 people to a briefing last week on the contract and procurement processes for the $440 million upgrade of its Pinjarra alumina refinery.
Mr Yeudall believes this kind of engagement is critical to make local firms aware of opportunities and project pro-ponents aware of the capabilities of local manufacturers
The government-funded Industry Capability Network WA (formerly the Industrial Supplies Office) has played a pivotal role in linking major projects with local suppliers.
Director David Kobelke believes the future rests with local suppliers who invest to be world class.
“The companies that are being innovative and invest in new technology are going to do well,” Mr Kobelke said.
He plays down claims that project proponents often favour imports because of a short-sighted focus on up-front costs.
Mr Kobelke said most companies adopt full life-cycle costings, including servicing, maintenance and parts, which tend to favour local suppliers.
He also believes project proponents need to focus on local content early in their planning if they are to maximise opportunities.
Thiess western region manager, process, Jim Aquino endorses this view.
“It revolves around getting earlier intelligence from the developers,” he said.
“We also have to give the [developers] more confidence they can get things done here and on time.”
Thiess has also recognised the benefits of specialising.
“We made a conscious decision to service only the top end of the market,” Mr Aquino said.
This means focusing on areas such as pipe spooling and vessel fabrication rather than structural steel.
Looking ahead, Mr Kobelke sees a big opportunity in getting Australian companies onto the global supply chain of multi-national project owners and engineering companies.
But first there is a major problem to overcome.
“There is a real disconnect between local projects and global databases,” Mr Kobelke said.
“You might beat the best in the world to supply a WA project but that information is not being fed into the multinationals’ supply chain.
“And if you are not in the global market you are dead.”
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