Wednesday, 19 March 2014
Oil and Gas Industry
I am pleased to have the opportunity to speak this evening on what I see to be an opportunity that unfortunately is slipping through our fingers, and that is the opportunities in the oil and gas industry offshore Western Australia, in the industry itself and in the shipbuilding and maintenance industries that support it. I should declare an interest in the sense that my family is very much involved in the shipbuilding industry and the supply of vessels on contract to the offshore oil and gas industries, but not here in Australian waters.
The scale of the operation is mind-boggling. There is $185 billion already invested in seven projects offshore Western Australia. More exciting than that is the untapped opportunity that is before us if only we can work together to get our act right. As I look through it and as I know senators and members from the other side, it really is a moment of great despair to me that we cannot get together across the chamber or in a room somewhere and help to sort out these issues, because they are slipping through our fingers. The scale of the operation currently in the resources sector in this area is paying $11 billion per annum tax revenue, with about another $5 billion in extensions beyond that. The potential between 2015 and 2025 is some 180,000 jobs in and around with value-adding and $320 billion of tax revenue to this economy.
We have seen a 10 per cent increase in LNG activity since it first commenced and that would easily go to 20 per cent increase per annum, up to 55 million tonnes of liquefied natural gas per annum. and we are at risk of that not happening. Why? Because there is such competition around the world and we are under such price pressure that we look like losing those opportunities. A project like Gorgon offshore WA that started at $37 billion went to $45 billion and now is expected to be $52 billion. When I met with industry people in Houston, Texas and in Lafayette, Louisiana, relatively recently, I can assure you that those different estimates of cost completions were very much to the fore amongst those people. Where are our risks? They are from the Canadians, the Asians, the Americans, the Mexicans, the Brazilians, in almost every sphere in which you look, and of course traditionally the North Sea.
Where I am concerned is that many of us in this chamber know very well the cost of inputs and materials, electricity, labour, finance, capital and overhead consumables—these are known to us. But the tragedy is that we are so designed to be fighting internally that we are not addressing ourselves to the external competition. I have heard others in this chamber at different times talking about standards of management. This is multinational companies with the highest standards of management. I have visited Barrow Island and I think, quite frankly, they are over the top in their expenditure, but they have got to meet environmental and other conditions.
One of the issues—not the only one but one issue that I do want to address—is this inability to be able to have employers and employees work together. I watched the Hon. Martin Ferguson when he made his decision to stand down from the ministry, and one of his comments at that time I have believed all my time as an employee, as an employer, in the public and in the private sectors, as a company owner and a business owner. The comment Martin Ferguson made was that, if the interests of the employer and the employee are not aligned together, then you can bet your life that you are in for failure. I quote from now Australian ambassador to the US in Washington, who Senator Mark Bishop and I had the pleasure of meeting in Washington last year, Kim Beazley—again, a Western Australian—making the point that there are a lot of challenges with labour, regulations, costs, material and planning. He said we have really got to be working on that now so that we can get the next wave of projects and remain competitive. How right he is.
In the time available I do not want to quote every point made by Martin Ferguson in recent times. He is a person well known in the resources sector, respected when Labor was in government in the minerals and resources sector as a person who understands it well and is surely one of the elders of the Labor Party over time. He observed that Australia's future economic strength will not be underpinned by the propping up of unsustainable sectors and that high labour costs and low productivity are an unsustainable mix and therefore elements of the Fair Work Act must be looked at. This is Martin Ferguson; this not is somebody out of management of Chevron or of ExxonMobil or Shell. He made the observation that unless we are prepared to see unemployment rise and living standards fall, we must improve productivity. He said, 'As a country we have got to be hungry for investment and the jobs that go with it. We think it is necessary for our workplace relations system.'
I will very quickly go through some statistics. The capital cost today to establish a new offshore oil and gas facility off Western Australia is $4,000 per tonne. An equivalent project in the American Gulf of Mexico—such as the Sabine field recently—is not $4,000, $3,000 or $2,000 per tonne; it is $1,500 a tonne. The differences are too great.
I had representatives of the AMWU come to see me in my office in Perth last year, pleading for my involvement and assistance in working towards re-establishing and shoring up the Western Australian shipbuilding industry. I know we have an emphasis on South Australia, Victoria and New South Wales, but we have a very proud shipbuilding industry in WA. The Austal shipping company, with the fast and huge catamarans, won the contract. They are now based in Mobile, Alabama, to satisfy American defence contracts, but they continue in WA. Submarine maintenance takes place down at Henderson. The point I made to the AMWU representatives was simple. I said to them, 'Give me an example of a project.' They mentioned the replacement for the Aurora Australis, which Senator Bilyk and I both know well. I asked them, 'Can you guarantee that if your employer arrives at a contracted price for construction you can hold to your labour costs for the duration of the project?' They said, 'No, we can't.'
They made the fatal mistake of coming to me and saying that the quality of shipbuilding and maintenance in yards in Singapore and Korea is substandard. I happen to know a fair bit about the shipbuilding industries in those countries. Let me tell you what we are up against when it comes to competition in this area. Members of my family are having ships built in China. The Chinese yards are using Norwegian and Dutch ship designs. They are using South Korean shipyard management—the best in the world. They are using Chinese labour. I was on one of their vessels in Panama between Christmas and New Year—a recently launched one in which my family has a very keen interest. The quality of the construction of that platform supply vessel was of the highest order. For these gentlemen from the AMWU to be sitting with me in my office running down the standard of construction in other countries did not wash. We are not going to stay competitive in the international market if we carry on like that.
We have always played catch-up in our country. Where are the oil and gas centres of the world? They are in Stavanger in Norway, Aberdeen in Scotland and Houston in Texas. Southern WA has the opportunity to be the Southern Hemisphere oil and gas hub. The opportunities are enormous. Representatives from those countries want to help us. I have spoken to them. I know them. I was at an event the other day for Australian oil and gas when the Norwegian ambassador in Canberra opened the Kongsberg big new facility.
The simple fact of the matter is that we have a completely new industry burgeoning, and that is floating liquefied natural gas—FLNG. We could be the first in the world, but that opportunity is going to slip through our fingers. The big FLNG companies—Shell, Prelude and others—will not be supplied from WA; they are going to be supplied from elsewhere, if we cannot get our act together. I appeal to my colleagues. Surely we can work together. Surely we can get through.
I will not address the nonsense of the MUA reaction when Martin Ferguson made his comments because it is beneath the dignity of this chamber to do so. My final appeal is this. There is an opportunity here. It is slipping through our fingers. It is an opportunity to be lost.