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The Gorgon Project - a missed opportunity for Engineers?
Compiled by Paula Beezhold, 14 October 2009
Chevron Corporation along with their Venture Partners, Shell and ExxonMobil, recently announced the decision to proceed with the development of the Gorgon Project(see project overview at end of article) – an endeavour which is anticipated to generate about 10,000 direct and indirect jobs in Australia at peak construction. The project is estimated to cost approximately AUD$43 billion for the first phase of development.
One WA Business News report (http://www.wabusinessnews.com.au) hails LNG as the gold of the 21st century – at least with respect to Western Australia. According to WA Business News' annual survey of major projects, the total value of oil and gas projects planned off the state's coast in the next decade totals AUD$195-billion.
Yet, the major engineering companies in Western Australia have cut employment by 15% during the past 12 months, defining the impact of the global financial crisis on the sector, according to WA Business News. The 25 largest engineering firms in WA currently employ a total of 6,669 engineers – that's down from a record 7,883 a year ago, a fall of more than 1,200.
Consulting engineers were among the first professions hit by last year's global financial crisis, which prompted many companies to halt or slow work on expansion projects. As well as cutting employment levels, many engineering firms also cut remuneration levels. Only a handful of firms experienced increased engineering employment, with the growth mostly tied to the fast-growing oil and gas sector.
Repeating history?
When Woodside announced that engineering work on the North West Shelf's train 4 expansion would be undertaken in Perth, local engineers saw it as the fruition of a progressive build-up of engineering skills and knowledge. It was the hope that it would be the start of a trend that would help Perth rival the established centres for LNG engineering – Reading (London), Houston and Yokohama.
However, most of the design work on subsequent LNG projects has fallen into the laps of overseas firms. Perth engineers had plenty of work on supporting infrastructure, even lead roles in designing platforms, pipelines and offshore facilities – but they haven't been able to win high-value process design work.
WA Business News quotes Liberal Party MP and former think tank economist, Dr Mike Nahan, as saying that “if we are talking about building on our resource base to build a new industry with export potential, I think it's the design of the (LNG) trains and other high-end engineering we should focus on."
According to the report he believes that, historically, there has been too much focus on trying to foster blue-collar manufacturing jobs. Dr Nahan emphasises that projects need to be internationally competitive and governments need to ensure projects actually proceed, but says more can be done.
"We have to make a strategic decision and use the leverage of our gas resources to put pressure on them to design the trains in Perth," he says. Beyond the immediate job opportunities, he believes this would build the state's intellectual capital and give WA the capacity to develop allied industries.
The article further cites information from a leaked 2005 report, titled 'Australian LNG Engineering Design: An Opportunity Lost?', as a possible explanation of WA's failure to secure more engineering design work. The report, written by the Industry Capability Network of WA, states that international engineering companies "appear to be very reluctant to invest in Australia to do their global LNG engineering work".
"It is probable that engineers with overseas LNG centres of technical excellence would see little advantage in doing work in Perth in collaboration with Australian-based engineering groups, who could become their competitors in the booming global LNG market," the ICN report says.
Reality check
Editor of Powering Australia and former chief executive of two national energy associations, Keith Orchison, argues in his online blog Powerline (http://www.businessspectator.com) that we need to see the creation of an adequate supply of skilled workers, just for the energy sector, never mind the rest of the minerals industries and other parts of the economy.
“In research that was undertaken for the petroleum industry, consultants ACIL Tasman have pointed out that securing skilled labour, especially for major construction projects, is one of the key challenges in Australia for the next decade. Building a complex development like the Gorgon LNG project requires a wide range of specialised skills that are in short supply and cannot be acquired rapidly through training,” comments Orchison.
He points out that lead Gorgon developer, Chevron Australia, took the trouble earlier this year to write to Martin Ferguson’s energy white paper working group to highlight just how hard the task of finding adequate skilled workers is going to be. The Federal, State and Territory governments, Chevron urged, should give priority to building skills capacity in Australia by investing more in education areas such as science, technology, engineering and mathematics, in increasing support for relevant apprenticeships and traineeships.
According to the report he believes that, historically, there has been too much focus on trying to foster blue-collar manufacturing jobs. Dr Nahan emphasises that projects need to be internationally competitive and governments need to ensure projects actually proceed, but says more can be done.
"We have to make a strategic decision and use the leverage of our gas resources to put pressure on them to design the trains in Perth," he says. Beyond the immediate job opportunities, he believes this would build the state's intellectual capital and give WA the capacity to develop allied industries.
The article further cites information from a leaked 2005 report, titled 'Australian LNG Engineering Design: An Opportunity Lost?', as a possible explanation of WA's failure to secure more engineering design work. The report, written by the Industry Capability Network of WA, states that international engineering companies "appear to be very reluctant to invest in Australia to do their global LNG engineering work".
"It is probable that engineers with overseas LNG centres of technical excellence would see little advantage in doing work in Perth in collaboration with Australian-based engineering groups, who could become their competitors in the booming global LNG market," the ICN report says.
Reality check
Editor of Powering Australia and former chief executive of two national energy associations, Keith Orchison, argues in his online blog Powerline (http://www.businessspectator.com) that we need to see the creation of an adequate supply of skilled workers, just for the energy sector, never mind the rest of the minerals industries and other parts of the economy.
“In research that was undertaken for the petroleum industry, consultants ACIL Tasman have pointed out that securing skilled labour, especially for major construction projects, is one of the key challenges in Australia for the next decade. Building a complex development like the Gorgon LNG project requires a wide range of specialised skills that are in short supply and cannot be acquired rapidly through training,” comments Orchison.
He points out that lead Gorgon developer, Chevron Australia, took the trouble earlier this year to write to Martin Ferguson’s energy white paper working group to highlight just how hard the task of finding adequate skilled workers is going to be. The Federal, State and Territory governments, Chevron urged, should give priority to building skills capacity in Australia by investing more in education areas such as science, technology, engineering and mathematics, in increasing support for relevant apprenticeships and traineeships.
“The impact on national GDP of these developments faltering for any reason would be considerable. The debate needs a reality check, with less emphasis on potentially vote-winning rhetoric and pork-barrelling and some heavy lifting in preparing to fend off a new crisis in finding the skills we need for essential infrastructure development,” Orchison concludes.
A recent report published by WA Business News holds the same viewpoint and suggests that most high-end LNG work would continue to be lost overseas due to Australia's poor record of building the specialist skills base needed by the industry. The report quotes Managing Director of Neptune Marine, Christian Lange, as saying that "we as an industry in Australia started way too late in developing oil and gas human capital. So where are we going to get experienced people from? They're going to have to come from overseas."
Most observers believe Gorgon will struggle to achieve better than 50% local content, compared to more than 65% for Woodside's Train 4 LNG expansion at the North West Shelf. According to the article Steve Jones, chief executive of oil and gas plant specialist Plexal Group, is of the opinion that 75% of Gorgon's work is going to be done overseas, in countries which have spent the last 20 years increasing their skills. Certainly all the engineering work might be done in the UK.
No silver bullet – but indeed silver lining
Project developers say they are doing everything possible to maximise local industry participation, but is citing competitive prices and a much larger pool of skilled workers as reasons for getting international engineering groups on board. Low unemployment and rising contracting rates have also been pointed to as evidence that local industry is in a good position. However, for local industry to be involved they must actually take the lead and tender for the work, a flaw that has been very relevant in recent years.
The project developers also emphasise that long-term business opportunities from servicing and maintenance of LNG projects far outweigh opportunities during the construction phase. There are more than 1 000 people in Perth already working on the Gorgon project.
The WA Business News report highlights the fact that the capital intensive and specialised nature of LNG plants means there is a substantial amount of work that cannot be done in Australia. There is also a large amount of work, which has to occur locally. The critical 'swing' factor is the work that can be done in either Australia or overseas.
However, there seems to be confusion concerning true engineering employment opportunities (as in higher level design, project management, etc.) and basic construction and trade “engineering” work (fabrication in workshops and site assemble/construction). There is a lot of talk about job opportunities being created, but these are all at the lower end of the scale. What about opportunities for higher level engineering work?
A recent report published by WA Business News holds the same viewpoint and suggests that most high-end LNG work would continue to be lost overseas due to Australia's poor record of building the specialist skills base needed by the industry. The report quotes Managing Director of Neptune Marine, Christian Lange, as saying that "we as an industry in Australia started way too late in developing oil and gas human capital. So where are we going to get experienced people from? They're going to have to come from overseas."
Most observers believe Gorgon will struggle to achieve better than 50% local content, compared to more than 65% for Woodside's Train 4 LNG expansion at the North West Shelf. According to the article Steve Jones, chief executive of oil and gas plant specialist Plexal Group, is of the opinion that 75% of Gorgon's work is going to be done overseas, in countries which have spent the last 20 years increasing their skills. Certainly all the engineering work might be done in the UK.
No silver bullet – but indeed silver lining
Project developers say they are doing everything possible to maximise local industry participation, but is citing competitive prices and a much larger pool of skilled workers as reasons for getting international engineering groups on board. Low unemployment and rising contracting rates have also been pointed to as evidence that local industry is in a good position. However, for local industry to be involved they must actually take the lead and tender for the work, a flaw that has been very relevant in recent years.
The project developers also emphasise that long-term business opportunities from servicing and maintenance of LNG projects far outweigh opportunities during the construction phase. There are more than 1 000 people in Perth already working on the Gorgon project.
The WA Business News report highlights the fact that the capital intensive and specialised nature of LNG plants means there is a substantial amount of work that cannot be done in Australia. There is also a large amount of work, which has to occur locally. The critical 'swing' factor is the work that can be done in either Australia or overseas.
However, there seems to be confusion concerning true engineering employment opportunities (as in higher level design, project management, etc.) and basic construction and trade “engineering” work (fabrication in workshops and site assemble/construction). There is a lot of talk about job opportunities being created, but these are all at the lower end of the scale. What about opportunities for higher level engineering work?
Any significant increase in demand for engineering design and/or project skills might only take place when revenue streams are channelled back for infrastructure work, which will only happen when Gorgon starts producing years from now.
For the time being the Gorgon LNG project seems to be offering limited direct benefit to Engineers, but there might be spin-offs for the industry as Chevron attempt to resolve the Operations & Maintenance (O&M) talent squeeze. talent torque has learnt from a reliable source extensively involved in WA and global LNG projects, that efforts to attract and retain scarce O&M engineering skills is turning out to be an uphill battle for large projects such as Gorgon. In fact WA may be seeing the emergence of a wages and talent retention explosion.
Unable to secure the many of the O&M skills required in time for bringing the trains online, Chevron may opt to ramp up local training facilities. Could this in turn trigger the emergence of new local LNG engineering expertise and ultimately make WA-based firms a competitive option for Front End Engineering and Design (FEED) work?
By encouraging more FEED work to be done locally we will create better engineering career opportunities for qualified local professional engineers and technologists, which in turn will develop local (WA/Australian) centres of excellence. talent torque's source poses the question: “In many cases other major LNG producers insist that the FEED work is done locally by having the Japanese, UK or USA major contractors establish headquarters in their region – why have WA/Australian governments not insisted on similar conditions?”
Benefits of such centres of excellence include incentives for local engineering consulting firms to retain and attract talent; WA building a reputation as a centre of excellence and subsequent attraction of more investment in LNG projects; and a larger engineering talent pool easing problems when recruiting for the O&M phase of LNG projects – keeping a lid on cost of skills and keeping WA firms competitive.
“To meet the potential needs of the LNG industry across Australia where Gorgon is only the tip of a very large iceberg, WA firms need to capture the moment,” the source comments. “This could be done through strategic alliances establishing capability through partnerships. There are plenty of examples, for instance the early establishment of small O&M companies in the North sea during the early 90's resulted in global capabilities within ten years from those early seeds.”
“Combining efforts will achieve far more over the next ten years than any amount of training, providing there is a will from government and industry. Salaries globally may actually be competitive here in WA, but living costs are not. Perth does lead the world in this area and it hinders the attraction of the Human Resource.”
For the time being the Gorgon LNG project seems to be offering limited direct benefit to Engineers, but there might be spin-offs for the industry as Chevron attempt to resolve the Operations & Maintenance (O&M) talent squeeze. talent torque has learnt from a reliable source extensively involved in WA and global LNG projects, that efforts to attract and retain scarce O&M engineering skills is turning out to be an uphill battle for large projects such as Gorgon. In fact WA may be seeing the emergence of a wages and talent retention explosion.
Unable to secure the many of the O&M skills required in time for bringing the trains online, Chevron may opt to ramp up local training facilities. Could this in turn trigger the emergence of new local LNG engineering expertise and ultimately make WA-based firms a competitive option for Front End Engineering and Design (FEED) work?
By encouraging more FEED work to be done locally we will create better engineering career opportunities for qualified local professional engineers and technologists, which in turn will develop local (WA/Australian) centres of excellence. talent torque's source poses the question: “In many cases other major LNG producers insist that the FEED work is done locally by having the Japanese, UK or USA major contractors establish headquarters in their region – why have WA/Australian governments not insisted on similar conditions?”
Benefits of such centres of excellence include incentives for local engineering consulting firms to retain and attract talent; WA building a reputation as a centre of excellence and subsequent attraction of more investment in LNG projects; and a larger engineering talent pool easing problems when recruiting for the O&M phase of LNG projects – keeping a lid on cost of skills and keeping WA firms competitive.
“To meet the potential needs of the LNG industry across Australia where Gorgon is only the tip of a very large iceberg, WA firms need to capture the moment,” the source comments. “This could be done through strategic alliances establishing capability through partnerships. There are plenty of examples, for instance the early establishment of small O&M companies in the North sea during the early 90's resulted in global capabilities within ten years from those early seeds.”
“Combining efforts will achieve far more over the next ten years than any amount of training, providing there is a will from government and industry. Salaries globally may actually be competitive here in WA, but living costs are not. Perth does lead the world in this area and it hinders the attraction of the Human Resource.”
The Gorgon gas fields, off the north-west coast of Western Australia, contain about 40-trillion cubic feet of Liquefied Natural Gas (LNG), the nation's largest known gas resource which contains enough energy to power a city of one million people for 800 years. Gorgon is expected to boost Australian exports and power the state's economy for decades to come, with long term supply deals already signed worth about AUD$145-billion.
Chevron Australia has signed binding LNG sale and purchase agreements for the supply of nearly 3-million tonnes per year of LNG into Japan and South Korea, the world's two largest LNG import markets. Osaka Gas and Tokyo Gas will be supplied with LNG supply from the Gorgon Project for 25 years, commencing in the second half of 2014.
Both Japanese companies are also purchasing an equity share in the Gorgon Project from Chevron. Osaka Gas is purchasing 1.25% and Tokyo Gas is acquiring a 1% interest. That leaves Chevron's interest in Gorgon at 47.75% and partners ExxonMobil and Shell both with 25%.
The project's scope includes three, 5-million tonne per annum LNG trains, an underground carbon dioxide injection project, expected to be the world's largest, and a domestic gas plant.
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