Informa Australia is part of the Informa Connect Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 3099067.

Energy & Utilities | Mining & Resources

Are you fit for $50? Geoffrey Cann discusses the global LNG industry

28 Jul 2015, by Informa Insights

LNG industry opinion leader, Geoffrey Cann of Deloitte Australia, will be delivering a workshop as part of the 21st Anniversary South East Asia Australia Offshore and Onshore Conference (SEAAOC) this August.  We took the opportunity to ask Cann his views on the current issues surrounding the global LNG industry, what factors will influence Australia’s future success and what workshop attendees can expect to takeaway from his half day workshop.

1. How is increasing productivity essential to keep Australia’s LNG industry globally competitive?
Australia is widely recognised as a high cost jurisdiction in which to do business. This stems from the country’s very large geography, sparse population, and distance from population centres, to the location of the nation’s resource plays. Oil and gas leaders confirm that, on a relative basis, Australia is some 30% more costly than other comparable basins globally. The Oxford Institute for Energy Studies has completed some research on this front, and also concluded that Australia is 30%-100% more costly for construction projects than the US, depending on what is being built.

It is still possible to be a high cost jurisdiction and be successful in oil and gas. Norway is a case in point. Norway has built an exceptional oil and gas industry on the back of the highest labour costs in the industry globally. And when the price of oil, and by extension, the price of LNG (which for Australia is in reference to an agreed oil price) is very high, as it was in January 2014, margins were robust enough that the high cost of business was manageable.

Geoffrey Cann, National Director, Oil and Gas
Geoffrey Cann, National Director, Oil and Gas

However, no one controls the price of oil. It’s set by global commodity markets. Therefore, each country and company participating in the industry must do what it can to control its costs. Secondly, and particularly for the high cost jurisdictions, each player must see that it is highly productive to compensate for its high cost. Assets must be highly utilised, and workers should have as little wasted time as possible.

Unfortunately, Australia also fares very poorly on productivity measures. Oil and gas executives believe that the country is at best only 70% as productive as the US. Our on-the-ground experience working with a selection of field services companies points to the same conclusion. We see suppliers operating with 40% utilisation rates.
If Australia is to attract further investment in the LNG industry beyond the current round of projects, including investment in brownfield expansions, the productivity of the assets and the workforce must improve, along with whatever gains can be made on costs.

2. It’s been a particularly interesting 12 months for the Global oil and gas industry, what other factors will impact Australia’s industry heading into 2016/17?
The big story for 2016-17 will be the progressive ramp up of LNG manufacturing in both WA and Queensland. The country currently has nine operating LNG trains (Northwest Shelf, Pluto, Darwin and QGC), and we should see GLNG and APLNG enter production, along with Gorgon and Wheatstone. The projects will shift from largely construction projects to operating businesses, focused on operations excellence, marketing and trading. The supply industry will need to match that shift by offering a different suite of services and on very different contracting terms.

Domestically, the volume and price of gas in the east will likely continue to show considerable volatility as the east coast projects ramp up. Gas customers need to adapt by beefing up their gas purchasing and trading capabilities.
Internationally, we will see the US enter LNG production as the first of its projects completes its build out. Canada is likely to sanction one or two of its projects. Expect to see an increasing level of interest in Australia’s experienced resources to work overseas on these projects.

Meanwhile the domestic projects will continue to explore any and all opportunity to improve their cost positions.

3. You coined the term getting “Fit for $50” – What role do you think industry collaboration will have to play in this?
US$50 refers to the price of a barrel of oil. All industry participants, both here at home and anywhere around the world, need to plan for an oil price of US$50 (and a matching LNG price of US$7.50/gj), and see that their businesses are economic at this level.

One of the techniques adopted by the UK North Sea basin in the 1990s, when the price of oil fell to US$10/bbl, was to dramatically increase the level of industry collaboration. The initiative was called Cost Reduction in the New Era (or CRINE). There has been some effort at collaboration across the LNG sector in Australia, but, frankly, there’s still considerable opportunity available for capture. For example, suppliers point out how they are required to spend weeks in attending broadly identical safety briefings for each project, at considerable cost to the projects. Common safety briefings would help. Training is another example. At present, there is no nationally recognised training program to certify a gas plant operator (unlike in Alberta, for example, where one 10-month course entitles attendees to work at any gas plant in the province). We need innovations on this and many other fronts.

4. You will share some of your top tips during your workshop at NT Resources Week – what practical lessons can attendees expect take away from your half day workshop?
We will cover some of the techniques that we have leveraged in oil and gas basins around the globe, as well as insights from related industries. For example, we recently helped a field service company boost their utilisation rates from 40% to 80%, and improved their service recovery from a negative to a positive position, without spending any funds on new capital or systems. We will reveal how other companies can put the same techniques to work for them.

5. What are the discussions you are looking forward to having with your industry peers during SEAAOC 2015?
SEAAOC is one of my favourite conferences in Australia. It’s large enough that it attracts a big audience, but sized right to feel intimate and welcoming.

I expect to gain insights into how the WA and NT projects are progressing, the latest developments in the frontier basins, the prospects for the creation of a truly national gas market, and the demand for services in operations and maintenance.

Join Geoff and many others at SEAAOC – Northern Australia’s premier oil and gas conference.

Northern Territory’s Leading Oil, Gas & Petroleum Conference

Blog insights you may like

Get all the latest on Informa news and events

Informa Connect Australia is the nation's leading event organiser. Our events comprise of large scale exhibitions, industry conferences and highly specialised corporate training.

Find out more

Subscribe to Insights

Join Our Newsletter
Informa Insights

Stay up-to-date with all the latest
updates, upcoming events & more.