Support vessel industry could gain from FLNG plans

The benefits for the offshore sector if floating liquefied natural gas (FLNG) is used for the massive Browse gas fields off the Kimberley coast are obvious. Supply vessels would be needed to support the floating plant and personnel, technical and maintenance crews would be required on a regular basis, and ports and repair facilities would benefit from spin-off contracts.

None of this would be needed if an onshore plant was built at James Price Point in the Kimberley – which is much the preferred option of West Australian premier Colin Barnett.

So committed is Mr Barnett to the local job opportunities of an onshore option that he warned Woodside Petroleum it may be unable to secure sales contracts for its Browse gas because he would refuse to allow the state’s share of the resource to be developed using FLNG. He estimated that Western Australia controlled about 15 per cent of the gas. However, Woodside has come back with a statement that 95 per cent of the volumes are in commonwealth (national government) permits, leaving only 5 per cent in state permits.

It appeared a clear message to the West Australian government that Woodside is prepared to go ahead with FLNG with or without state political support. If it does, then the hand of Shell will also be strengthened in its plans to deploy an FLNG facility for the development of the Prelude gas field off Australia’s northwest coast.

Exxon Mobil and BHP Billiton are also planning to use floating LNG technology to develop the remote Scarborough gas field off the West Australian coast. GDF Suez and Santos are also working on FLNG technology to develop the Bonaparte LNG project 250km offshore from Darwin.

A Western Australian parliamentary inquiry has been investigating the viability and safety of FLNG. Woodside emphasised its commitment to an offshore facility, countering the suggestion it would eliminate job opportunities by saying that hundreds of engineers would be needed in West Australia to support an FLNG facility and more than 1,000 people would be needed to work on the platforms.

Complicating the debate is the fact that FLNG technology is still unproven. The Prelude project off the West Australia coast will become the first field in the world to be exploited using this technology.

The ability of a floating plant to withstand severe weather conditions has been one of the factors attracting attention. Chevron Australia managing director Roy Krzywosinski told the parliamentary committee that there are concerns when it comes to cyclones and plant maintenance.

“For us, there are still some unanswered questions, including the safety case for extreme weather locations – and those locations, for example, include high cyclone areas,” he said.

“It is unclear to us how these issues impact on the continuity of operations on a day-to-day basis... specifically the availability and reliability of these facilities when comparing [them] to land-based plants.” However, Shell and Exxon say their platforms will be anchored to the seabed and will be able to withstand extreme weather conditions.

The inquiry’s report is expected to be handed down by May next year. In the meantime, the offshore support industry will be keeping a close eye on how the debate proceeds. Woodside and its partners will make their final investment decision on whether to develop the Browse Basin by 2015.

A driving force behind the FLNG issue is the need to reduce the cost of Australian offshore projects. Shell argued that FLNG processing platforms can be 30-50 per cent cheaper to construct than onshore facilities. They avoid the need for a pipeline or port facilities and while they are more expensive to operate than onshore developments, the difference in upfront capital costs more than offsets the difference in operating costs over the life of the project.

Exxon Mobil vice president of LNG, Luke Musgrave, told the West Australian inquiry that Australia faced competition from other LNG exporting countries if project costs don’t come down. “What we can’t afford is for the maintenance costs to be among the most expensive in the world,” he said.

Chevron’s Mr Krzywosinski cited research from business consultants McKinsey which found that new Australian LNG projects were 30 per cent more expensive than similar projects in Canada and East Africa. He said governments and industry need to work together to bring down the costs of doing business here or risk projects going to other LNG producers such as the United States or Africa.

In terms of cost blowouts, the finger is firmly pointed at Chevron’s giant Gorgon gas project, which has gone over budget by A$9 billion (US$8.5 billion), from A$43 billion to A$52 billion. Mr Krzywosinki blamed this on the logistical challenge of building the project on Barrow Island, which is a Class-A nature reserve, plus weather delays, high wages for gas industry workers, and low productivity.

However, the Maritime Union of Australia (MUA) has launched a staunch defence to the claims, saying it is not high wages for the shipping companies that supply oil and gas platforms, lay pipes and do underwater exploration that is making the offshore LNG industry uncompetitive, but mismanagement by Chevron and multiple tiers of management.

The union commissioned its own economic consultants, BIS Shrapnel, to look into a report by Deloitte Access Economics on the offshore oil and gas marine support sector, which had earlier concluded that firms’ profitability had fallen and strong wage increases would threaten the viability of the ship operators.

However, the BIS Shrapnel report says this report was flawed because it surveyed five out of 19 vessel operators instead of looking at public data on their finances. Instead, BIS Shrapnel reviewed annual reports and investor presentations for three vessel operators which showed revenue growth of 200 per cent from 2007 to 2012 compared to wage growth of 50 per cent, which “strongly refutes the claim that wage growth is outpacing revenue growth”. Wage costs for support ship workers were just 0.25 per cent of the cost of the Gorgon project.

MUA national secretary Paddy Crumlin said the Deloitte report was part of a “political ploy” by employers to set the scene for industrial negotiations on behalf of around 1,000 workers in the offshore support industry.

Meanwhile, it has emerged that the Gorgon LNG joint venture partners are using 60 per cent more Barrow Island land than allocated by the West Australian government. The partners have had to seek government approval to access 67 per cent more land than was foreseen in 2009 when it and partners Exxon Mobil and Royal Dutch Shell signed off on the project’s development.

Labour dispute mars salvage work

A dispute about overseas salvage companies declining to use New Zealand marine staff has marred the next phase of the salvage operation on the stricken containership Rena, which sank after striking the Astrolabe Reef in the Bay of Plenty in October 2011.

The NZ Merchant Service Guild, the ships’ officers and engineers union, asked Immigration NZ to revoke the work visas for crews handling the Rena, after stating that none of the 14 officer jobs on the four salvage vessels will be offered to New Zealanders. The guild objected to the issuing of work visas for these jobs and also asked for the revocation of visas issued for the tug Resolve Commander.

Resolve Salvage & Fire is carrying out the next stage of the salvage operation, cutting the ship’s accommodation block from the sunken aft section of the hull. The guild said it asked why NZ officers could not have been sourced for training, and why the Resolve Commander, which has now been here for well over a year, could not have been used for training some officers. It was told Resolve had not allowed any time or provision to integrate or involve NZ officers.

Resolve issued a statement to say 56% of employees on the Rena project were locals, and that local specialist sub-contractors, mainly dive crews, were contracted on an as-needed basis. It said the people it employed and the specialist equipment used required specific skills and the necessary time and experience on the job. However, the company has agreed to employ eight further union members as part of its negotiations with union officials. OSJ