Canada builds LNG army for West Coast, may come up short

VANCOUVER Thu Jun 12, 2014 2:06am EDT

The downtown of Vancouver, British Columbia is pictured at sunset July 31, 2013.   REUTERS/Andy Clark

The downtown of Vancouver, British Columbia is pictured at sunset July 31, 2013.

Credit: Reuters/Andy Clark

VANCOUVER (Reuters) - The Canadian province of British Columbia is on the brink of a liquefied natural gas boom, but a shortfall of thousands of workers is imperiling billions in investment dollars.

More than a dozen LNG export terminals are being considered for the Pacific coast province, and analysts expect three to five will go ahead. They will also need hundreds of miles of pipeline and thousands of wells, which use the same fracking technology that has transformed the U.S. natural gas industry.

To meet industry needs, British Columbia has promised to build an army of workers, but competition from rival projects, an aging workforce, and tight timelines could mean conditions are ripe for the same sharp cost overruns that cut short a similar energy boom in Australia.

Provincial workforce projections reviewed by Reuters show that the province could face a shortage of nearly 12,000 skilled workers to staff the most in-demand trade jobs at peak LNG construction. The province plans to address the gap by sharply boosting training, more than quadrupling intakes for certain trades. But it likely will still face a shortfall in some key roles.

Foreign workers could ease some of that strain, but Canada clamped down on its controversial temporary foreign worker program after a spate of recent abuses, raising the risks projects might not fill jobs quickly and easily.

Royal Dutch Shell (RDSa.L), Chevron Corp (CVX.N) and Malaysia's Petronasare all contemplating projects in British Columbia, but none have made final decisions on developments worth C$175 billion ($161.2 billion).

"I want to move a project forward as quickly as I reasonably can," Marvin Odum, President of Shell's U.S. subsidiary and a member of the Anglo-Dutch company's executive committee, told reporters at a Vancouver LNG conference last month.

"But until there's some clarity on workforce issues and labor availability, you can't make that decision."

Companies also want clarity on taxes and need to secure sales contracts before projects can move ahead.

TRAINING TIME

To help address labor concerns, British Columbia has pledged to re-tool its education system, shifting funding away from arts programs and into training for careers like engineering and the construction trades.

Even the trainers say it may not be enough for peak demand.

"The priority is giving B.C. residents the opportunity to be first in line," said Gary Herman, interim head of the Industry Training Authority, the provincial agency that manages apprenticeships, adding: "We're still going to have to bring folks in to help."

Canada's temporary foreign worker program has come under fire in recent years over reports of Canadians being passed over for jobs. That has prompted a broad program review and is fanning worries that the government could cut off access.

In the resource sector, even union officials see a need for temporary help, though only as a last resort. Many regularly tap sister unions in the United States when short-term demand for certain skills outpaces supply in Canada.

"Without temporary foreign workers going in there, jobs are going to be delayed, jobs are going to be canceled and it will have an impact not only on the Canadian economy, but also on the Canadian workforce," said Joseph Maloney, Western Canadian VP for the International Brotherhood of Boilermakers.

British Columbia projects its entire economy may need an extra half million workers over the next decade, since a majority of the workforce is close to retirement and there are not enough young people to replace them.

To get a clearer snapshot of the LNG need, Reuters looked at the province's expectations for the 10 most in-demand LNG jobs at peak construction in 2018, which include seven trades, two unskilled labor roles and one office job, and together represent about 80 percent of direct jobs at peak construction.

For those 10 roles alone, British Columbia expects it will need just over 26,000 new workers, including nearly 12,000 skilled trades people, to meet demand from up to five projects, including export terminals and related pipelines.

B.C. plans to train 24,000 to 27,000 workers for those LNG jobs, including adding 11,000 to 12,000 new skilled workers.

But even with the ambitious training program, the province will still be short hundreds of workers in each of four key trades, according to the projections. That may seem insignificant, but if just a few specialty workers are not available for a key task, it can mean expensive delays.

"In the short run, we may not have enough workers to meet the needs of industry," said Craig Alexander, chief economist at TD Bank Group, Canada's second largest bank.

"But shortages would raise wages encouraging more workers into these fields and the market to eventually adjust."

LEARNING FROM AUSTRALIA

Canada's tight labor supply has drawn comparison to Australia, where LNG companies ended up battling with miners, and each other, for staff and materials, leading to cost blowouts that dramatically slowed a natural gas bonanza.

At Chevron's Gorgon project in Western Australia, project costs have soared 46 percent to $54 billion, driven by pricey labor, high turnover and low productivity, along with poor planning and logistical delays for the island-based build.

"Finding the labor, particularly the right skills sets, to move Canadian LNG projects forward is going to be a critical challenge for industry to overcome," said Barry Munro, Canadian Oil & Gas leader at global professional services firm EY.

Part of the issue in Australia, labor experts say, was that as the number of workers on projects rose sharply, the skill level and years of experience decreased, cutting productivity.

"In Australia, our onsite workforce went from 30,000 to nearly 90,000 from early 2010 to mid-2013," said Peter Dyball, founder of Pit Crew, a management consultant. "Qualifications, skills and the sector-specific experience were spread thin."

The lack of just a few skilled people at key times also proved to be bottlenecks for massive projects, he said.

British Columbia Premier Christy Clark acknowledged the risk to reporters at a recent industry event, and said her government had learned from Australia's mistakes.

"If you look at what happened in Australia - it was a mess. People walked away from billions of dollars in investment because they couldn't afford to build the facilities. It got too expensive on the labor side," she said. "We intend to avoid that."

(Editing by Jeffrey Hodgson and Peter Henderson)

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