But cost management and productivity will be increasingly important for operators themselves and, even more so, the sector that services them.
On the cost side, we know that the Australian gas sector’s unit labour costs are high when compared to global competitors. Several independent studies have confirmed this, placing Australian gas wages at 35 per cent higher than comparable roles in the US, and on par with the Norwegians, who are the highest paid in the world.
High labour costs and skill shortages during the resource project construction phase – when the demands of a booming mining sector and six parallel LNG projects led to significant labour and skills shortages – were not surprising. The sector has had to ramp up very quickly, and suppliers have been free to test the ceiling on rates, while avoiding any at-risk contracting or performance-based supply arrangements.
This has eased considerably as the construction phase shifts to production, but unit costs have not come down at pace with the construction slowdown or the fall in oil prices.
To put this in a regional competitive context, several analyst studies have projected that Canadian LNG will be able to land in Japan for around $2/gigajoules (GJ) less than equivalent cargoes from Queensland. Combined with Queensland’s $1/GJ shipping cost advantage over Canada based on shipping distance, Queensland LNG projects have to remove $3/GJ to achieve cost equivalence with Canadian LNG.
This equates to around $1.5 billion in excess cost per project per year in gas – or a total local industry prize of as much as $6 billion per year, or up to $120 billion over a 20-year project life. So, to attract any more expansion and gain a strategic advantage, projects need greater than $3/GJ savings.
In the same vein that costs are high relative to global benchmarks in oil and gas, productivity is too low.