Work needed if Perth is to build on potential

Perth is a unique location in the resources world, arguably the only place outside the major financial capital of London that can lay claim to being a global centre that straddles both the mining and oil and gas sectors.

While Houston in the US is known for global leadership in oil, and Canada’s Calgary plays a regional role in energy, Vancouver and Denver dominate North American mining.

Stavanger in Norway and Scotland’s Aberdeen have a pincer on the North Sea’s energy resources, forcing London to play third fiddle, despite its role as Europe’s mining hub, due to history and financial clout rather than proximity to minerals.

Johannesburg is a big player in world mining, but it has no African peer in oil or gas.

Perth, in this sense, is on its own. While it competes regionally with Brisbane in mining and is still well short of the trading-driven might of Singapore in energy, there is literally no global comparison.

Yet a recent report prepared for the Department of Industry and Resources suggests the Western Australian capital is at something of a crossroads, and could take greater advantage of this unusual stroke of fortune.

“The clear conclusion from this scoping study is Perth’s unique position as an important global centre to both mining and to the oil and gas industries,” the report states.

However, the report, based on extensive interviews with leading players across both industries, finds “very few synergies which have been captured between the two sectors to date”, the “most significant exception” being in engineering procurement where consulting firms have developed “cross-commodity capabilities”.

“Aside from the positives which could flow more generally from capturing synergies it may also provide a means to broaden activity and mitigate, to some extent, against the inevitability of the booms and busts in the resources industries,” the report says.

The report, the World Resources Cities Project: Scoping Study, compiled by Fremantle-based Telesis Consulting, paints a brief yet interesting picture of Perth’s almost sudden arrival as a global leader.

In mining, a breathtaking array of commodities available in vast quantities has not just made Perth a focal point for the sector, its broad knowledge and experience has been put to good use in other parts of the globe.

“Perth’s growing involvement in projects in Africa and its substantial population of South African professionals attracted over the past decade open up very attractive opportunities,” the report claims.

Few in the WA mining community would doubt Perth’s role as a strategic centre for operations throughout the African continent, partly driven by South Africa’s poor performance and partly pushed by explorers seeking easier pasture than at home in Australia, where Native Title issues hamstrung development in the 1990s.

Much of this outward focus has happened is just 10 years, though WA’s large-scale mining history is over 100 years old, with West Perth’s role as a “mining incubator” (as the report’s author Peter Morris privately tagged the suburb) somewhat unheralded.

“The other possibility, which a number of firms are capitalising on, is developments in South America,” the report continues.

“The challenges posed by language, cultural differences and transport links are significant but inroads are being made.

“Whether Perth is the leading centre in the Asia/Pacific, or even globally, is still not clear.

“It is certainly well positioned to be a dominant provider of strategic business services in the Southern Hemisphere, which is increasingly the mining area.

 “There is little doubt that Perth is in the top rung of [mining] cities and well positioned to move up.”

The oil and gas story is less clear, largely because Perth’s appearance on the world scene in this sector has been so much more recent and is very much linked to LNG, a commodity whose importance is only just gaining world recognition.

Both of these factors, the report says, combined with the very mobile workforce and dynamic structure of the industry “weaken Perth’s claim for top-level status”.

“Nonetheless Perth has made great strides, particularly in the past five years, and has developed a number of significant strengths which could be built upon,” the report says.

“The extremely dominant position of the US industry, and Houston in particular, make aspiring to global leadership unrealistic but the opportunity does exist to consolidate our significant position in the Asia/Pacific and potentially be regarded as the pre-eminent regional centre.”

Fortuitously, WA’s oil and gas is not all deep sea and is not only limited to the majors. There is a thriving junior sector at work, like the mining industry, exploring, developing smaller fields and prepared to work in more remote and riskier areas.

The strength in junior resources – including the support side such as finance, legal and technology – is something that is often overlooked, yet as recently as three weeks ago Carnarvon Petroleum Ltd decided to shift its headquarters from Melbourne to Perth to take advantage of the investment climate here.

While the reasons might be different, there is no doubt that Woodside Energy Ltd’s decision to relocate its head office here from Victoria a few years ago has had a significant impact.

In global terms, Woodside is a lightweight but it has a substantial footprint on one of the most immediately available supplies of LNG and it reflects the growing importance of smaller players as energy is increasingly tapped from smaller fields.

The challenge for Perth is that the oil and gas industry’s mobility may work against it, as expertise could be taken away by higher bidders – where taxes and immigration issues are far less trouble.

“There is a real possibility that Perth could be caught in the middle: big enough to attract attention as a source of capability but not well positioned in the industry’s global value chains to have strategic power to defend itself, or better still, to flourish during this boom,” the report says.

Such issues have already been encountered – even in the (globally) relatively small and emerging LNG sector where the battle has been on for local content in both the design and construction.

In the past few years the pendulum has swung from the highs of the North West Shelf’s Train IV LNG project to what many consider were the lows of Train V.

For Train IV, NWS operator Woodside and its engineering, procurement and construction manager Kellogg Joint Venture broke new ground in WA by electing to engineer the more than four million tonnes per year project in Perth.

As reported by the Industry Capability Network WA group, it was the first time an LNG train of this size was engineered in the country where the plant was to be located.

The Train IV project contract was worth approximately $280 million and employed 400 staff.

The industry ecstasy was short-lived, however.

The decision to undertake engineering design work for NWS Train V was considered by the ICNWA as likely to “significantly weaken Australia’s ability to compete in the rapidly expanding global LNG plant design market” where Yokohama, London’s Reading district, and Houston dominate.

“The major engineering companies, which have established centres of excellence outside Australia, now appear to be very reluctant to invest in Australia to their global engineering work,” the ICNWA reported.

“Australia is effectively being eliminated as a player.”

With billions expected to be invested in LNG in the coming decade the ICNWA report, entitled Australian LNG Engineering Design an Opportunity Lost, suggested this was a blow to Perth’s opportunity to be a new player in this growth field, especially when there was no clear reason why a low-cost city such as the WA capital could lose out on price to London.

Construction also shifted offshore, with Train V being produced in Indonesia.

Under this climate of local concern, it is perhaps clear why the Gorgon joint venture was at pains to stress the role of Perth in its development.

In its July announcement of $100 million worth of contracts for the front-end engineering and design, both the upstream and downstream elements provided Perth with a key role, with as much as two thirds of the manpower based in Perth for this 12-month phase.

Gorgon, whose development will ultimately be about three times the cost of NWS Train V, said Perth was to be the “central focus” for upstream front-end work undertaken by JP Kenny and Technip.

In the downstream front end, the Kellogg Joint Venture – consisting of Halliburton’s KBR, Clough Ltd, Hatch and JGCC – would establish a project management office in Perth but process design would be undertaken in Houston.

Clearly, the inability for Perth to hold onto such work – despite having proved its capacity previously – is a threat to its emergence as a global oil and gas centre, something which is critical if it wants to honestly fly its flag as the only true global resources centre.

The key weaknesses identified in the report commissioned by DOIR are in two clear areas: isolation, for which little can be done except attempt to bring the world closer; and the small labour pool, which is exacerbated by lower pay, higher taxes, immigration difficulties, a bad industrial relations climate and low student intakes for engineering and technical courses.

The difficulties presented by Australia’s immigration laws and their inflexibility in the face of a regional problem faced by an isolated resources capital like Perth are probably the most immediate of these – largely because it is one that has an easy short-term solution.

There are, thankfully, a number of initiatives that will help to address some of the other problems over the longer term.

WA Business News is aware of two resources-focused ideas being touted at the highest levels by leaders of that community.

One is some form of institution of higher education centred on resources, a resources university that would harness some of the strengths of Perth’s academia in this field and place it close to the commercial operators which abound in Perth at all levels.

While WA already has engineering, geology and mining courses at two local universities at least, as well as significant energy and resources research capacity through CSIRO and other collaborators, the idea of harnessing that kind of expertise under a banner that could claim global recognition is attractive to some in the industry.

There is also talk, admittedly, very vague of a “resources precinct”, as one leader put it.

Exactly what shape this would take is unclear, although it was meant to have both commercial and public appeal but was “not a museum”. Maybe both these ideas belong together – placed right in the heart of the ‘incubator’ of West Perth?

A positive note in Perth’s drive to become a global resources centre is the increasing recognition by both the Labor state government and the City of Perth of the importance of mining and energy to the state.

Labor Premier Geoff Gallop and his two state development ministers, Clive Brown and now Alan Carpenter, have all toured offshore promoting our resources. They have also championed changes to speed development.

Earlier this month, Perth Lord Mayor Peter Nattrass was named president of World Energy Cities Partnership, a grouping of 13 major international ‘energy cities’ who work together to advance the industry and to maximise the benefits to individual cities

While this body has only a nominal role in global energy, the industry can only hope that the role may help stimulate more interest in resources in Perth, even if it doesn’t provide much influence in wresting back key process design projects.