Corporate News: Big Gas Projects Face Tight Australia Labor Pool
By Daniel Gilbert
14 October 2011
The Wall Street Journal
Energy companies in Australia have a jobs problem: They are creating too many at once.
Companies including Chevron Corp., ConocoPhillips and Royal Dutch Shell PLC are spending billions of dollars in the country on mammoth facilities to cool natural gas into liquid form in a bid to supply Asian markets.
But the seven projects now under construction, and others planned, must compete for skilled workers to construct the plants in an Australian market already stretched by an expanding mining sector. Analysts say a scarcity of labor threatens to drive up costs and cause delays, jeopardizing the return on investment for backers of the liquefied-natural-gas projects.
Chevron may have the most at stake in Australia. The San Ramon, Calif., company and its minority partners last month approved a $29 billion facility in Western Australia to liquefy natural gas, following a $37 billion project with Exxon Mobil Corp. and Shell which is about 30% complete. Together, Chevron expects the projects will produce the energy equivalent of 420,000 barrels of oil per day over the next 25 years, or 15% of what the company produced in 2010.
George Kirkland, Chevron's vice chairman, said in a September interview that he saw no bottlenecks in obtaining equipment for the projects but added, "The one [issue] I would characterize as one that we're very concerned about always is labor."
In Western Australia, a hub of liquefied-natural-gas, or LNG, projects, the unemployment rate was 4.4% in August, compared with 5.3% nationally. The demand for highly specialized skills means that an experienced offshore welding inspector can make more than $2,000 a day, about twice as much as in the Gulf of Mexico, said Dane Groeneveld, a regional director for NES Global Talent, which recruits labor for several big LNG projects in Australia.
"We can't grow quickly enough to support the demand for staff," Mr. Groeneveld said.
Some major contractors like Bechtel Corp., which is building three LNG plants on Australia's Curtis Island for different operators, have forecast a need to import electricians and welders. But Australia has tough restrictions on granting visas to foreign workers, and companies must also contend with local unions who have complained about contracts going offshore.
Companies have committed over $100 billion in the next four to five years to build LNG projects in Australia, which could move the country ahead of Qatar as the world's largest exporter of liquid gas within the decade.
They are seeking to capitalize on Asian demand for LNG imports, which has intensified since Japan's nuclear meltdown in March prompted the country to idle reactors and import more gas. But Asia's long-term appetite for gas imports remains unpredictable.
Companies try to guarantee their LNG projects will be profitable by securing long-term contracts to sell a majority of their projected output before construction. But margins can erode over the years it takes to complete such projects, which have a history of cost overruns that only become more likely when labor is more scarce.
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David Winning contributed to this article.
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