As Australian mining cools, labour shortages ease in LNG

Wed May 29, 2013 12:13am EDT

* Energy and mining competition had led to staff shortages

* Helps drive up costs at Australia LNG projects

* Drill rigs and geologists freed up by mining slowdown

By Rebekah Kebede

BRISBANE, May 29 (Reuters) - A downturn in parts of Australia's once-booming mining sector is having an unexpected silver lining - freeing up labour and resources for at least $190 billion of liquefied natural gas projects being built in the country.

Stiff competition in the energy and mining sectors driven by an infrastructure building spree to meet Asian demand has led to shortages of some workers and driven up wages in recent years.

Australia has seven LNG projects under construction, involving firms such as Royal Dutch Shell, Chevron Corp and Inpex, but more than half have announced cost blowouts partly blamed on labour costs.

Soaring costs in Australia, also linked to a strong local dollar and stringent environmental rules, have become a hot issue and led to some in the industry warning that $100 billion of future LNG projects could be scrapped.

LNG projects in Australia are currently 20 to 30 percent more expensive than their rivals in North America and East Africa, according to the consulting firm McKinsey & Company.

Chevron Corp, whose $52 billion Gorgon LNG plant in Western Australia is the largest gas export facility under construction, said is already seeing more interest in LNG jobs.

"We were a little bit worried that as we got into the big ramp up that we might be caught short," said Roy Krzywosinski, managing director of Chevron Australia.

"When we need an incremental 100 people, we are finding them," he added, speaking on the sidelines of an industry conference where costs have been a big talking point.

Gorgon LNG and Chevron's $29 billion Wheatstone LNG development have together created 14,000 jobs across Australia.

Companies with LNG operations near Australia's coal sector on the eastern seaboard may be reaping even more benefits.

With coal miners cutting output and staff, more workers were now available, said Grant King, managing director of Origin Energy.

"The great news is there's jobs for those people in (the LNG industry)," King said.

While the supply of more labour may take some pressure off LNG projects, it was unlikely to drive down costs on Origin's A$24.7 billion ($23.77 billion) Australia Pacific LNG plant.

"I don't think anybody is saying these projects are going to get cheaper, but I think the availability of labour takes some of the risks away from these projects," King said.

MORE DRILLING RIGS, GEOLOGISTS

The easing of pressures for some LNG and gas producers goes beyond labour.

"Resources have been relatively available - anything from trucking to drilling rigs to geologists and engineers," said Brad Lingo, managing director of oil and gas explorer Drillsearch.

Drillsearch, which expects to supply gas to LNG export projects, has seen a 10 to 20 percent cost saving in its operations at the exploration stage, Lingo said.

While cost improvements can be chalked up partly to the mining downturn, engineering and oil and gas services companies were also having to cut fees to win work in Australia, said David Knox, chief executive of Santos, Australia's second-biggest energy firm.

Australian LNG projects currently on the drawing board could provide a A$320 billion windfall for the Australian economy from 2015 to 2025, according to McKinsey.

But given Australia's higher costs some fear the projects won't get built.

Although Australia is on a path to becoming the world's top producer with it share of global LNG supply set to jump from 7 percent in 2000 to 25 percent in 2018, Wood Mackenzie said it expected fewer new LNG plants to be approved due to higher costs and competition from U.S. LNG exports tied to a shale gas boom.

"U.S. supply has become the most favourable near-term option, that is for deals where supply is expected to start pre 2020," Andrew McManus, Wood Mackenzie's head of Australia Upstream Consulting, said.

But some in the industry are less gloomy, even with costs 20 to 30 percent more expensive than the competition.

"That is a concern, we've got to work on that. It doesn't mean that everything is off," said Santos' Knox, who expects cheaper ways of building LNG projects to help the situation.

Faced by the higher expense of building on-shore plants, firms such as Woodside Petroleum and Royal Dutch Shell are also looking at floating LNG platforms to save cash.($1 = 1.0389 Australian dollars) (Editing by Ed Davies)

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