Skills shortage complicates Australian resource boom

Russell McCulley 
Sunday, April 1, 2012

The energy industry skill shortage has renewed long-running debates in Australia over immigration and at times pitted the population centers in the east against the resource-rich but sparsely populated west. The topic was on the minds of many at February's Australasian Oil & Gas meeting and concurrent Subsea Australasia Conference in Perth, as US editor Russell McCulley reports.

With several major LNG projects underway offshore Western Australia and Northern Territory, the country is facing an immediate and severe shortage of skilled workers. In the near term, tens of thousands will be needed for the construction phases of megaprojects like Chevron's Gorgon and Wheatstone, Woodside's Browse LNG and the Inpex-operated Ichthys project, along with a number of other developments.

The Australian oil & gas industry is also scrambling to fill longer term operational and engineering slots. In February and March Chevron held a series of 14 recruitment sessions throughout the country seeking hundreds of facilities engineers for Gorgon and Wheatstone, with positions available in Perth, Barrow Island – site of Gorgon's LNG processing plant – and overseas, where various elements of the projects are underway. Other companies have launched similarly aggressive recruitment campaigns to find staff for both project construction and operation phases.

In an address at AOG, Peter Collier, Western Australia minister for energy, training & workforce development and indigenous affairs, said Western Australia alone has about A$267 billion in mining and petroleum projects in the pipeline. The state is expecting a shortfall of around 76,000 workers by the year 2015, with ‘a significant majority in the resource sector,' Collier said.

‘That's scary stuff – that's 76,000 workers,' he said. Several large projects have received sanction in recent months and are in various stages of construction; many more are under consideration. ‘The real prospect of those projects going ahead is very good,' Collier said. ‘The biggest impediment to those projects – forget the approvals, forget all the other things, forget about access to resources – the biggest impediment to those projects is ensuring that we have a skilled workforce.'

Looking specifically at the resource industry in Western Australia, where the consultancy firm Pit Crew is modeling 89 projects with a total capex of about $292 billion, labor demand will peak at around 42,500 workers, up from a current 25,000. Over the next two to four years, demand for skilled construction workers will outstrip supply by 50% or more, said Pit Crew managing director Peter Dyball.

‘There's no doubt that there's some big, scary numbers around 2013/14,' Dyball told conference attendees. Factoring in projects in Queensland and Northern Territory, demand for skilled engineering, construction and operations personnel will double from a current 80,000 to 160,000 by mid-2014. ‘Demand for labor is going to ramp up, regardless of whether any new projects are approved,' he said.

The shortage will accelerate an already fierce competition for workers between the states of Queensland and Western Australia, among energy companies, and within the LNG industry itself, which has traditionally competed for workers with the country's mining sector.

John Kempe, CEO of the crew and staffing provider Offshore Marine Services, said the building boom could profoundly alter the Australian labor market for a decade. ‘Even if some of the projects are delayed . . . we're going to see a period here of unprecedented requirement for skilled and semiskilled people, probably through to 2020,' Kempe said.

‘And then we've got the challenge beyond that, in terms of production and operation.'

Historically, he said, Australia has witnessed ‘significant gaps' between large projects, allowing developers to get by with an ‘ad hoc' offshore construction workforce largely made up of the same workers. ‘So there hasn't been a large investment in new people coming into the industry,' he said.

‘Typically, the construction workforce has been 200-300 people and the campaigns usually only last three to four months. They man up very quickly, the job gets done, a consistent workforce, a good level of supervision, and then bang – disband, and everyone's back doing what they used to do,' he said.

‘In the future, we're going to be seeing on each particular construction package between 600 and 700 offshore construction workers.' Some megaprojects – notable Wheatstone and Ichthys – could have concurrent offshore construction phases, compounding the shortage.

Still, Kempe sees the current labor crunch as an unprecedented opportunity for Australia, and maintains that market forces will fill the jobs. ‘These are huge numbers, but with offshore construction workers, the wages and conditions are very attractive: three weeks or four weeks on, three or four weeks off,' he said, with annual wages of about $350,000. ‘The issue will be, they will be coming from areas that need to be backfilled,' he said.

More FEED sought for local firms

Efforts are under way to ensure that more FEED, pre-FEED and project management contracts go to Western Australian companies for oil & gas developments in the state, including a proposal that calls for greater government focus on engineering during local content negotiations with project developers.

A February 2012 report commissioned by the Western Australian Department of Commerce,Assessment of the Engineering Design Capability and Capacity in the Oil and Gas Sector in Western Australia, examines the capacity of local firms to provide comprehensive services during the concept, FEED and detailed design phases of LNG projects and sets out a series of recommendations that could help the state capture a greater share of the market.

Western Australia minister for commerce & small business Simon O'Brien unveiled the report, compiled by Martin West, of Curtin University, at the Australasian Oil & Gas conference and exhibition in Perth. The study details the strengths and weaknesses of the domestic engineering design industry and calls for ‘substantial' government involvement in securing contracts for local firms.

‘Our engineering and our engineering design industry in Western Australia does have a great deal to offer in terms of its capability, the capabilities that it can offer to resource developments both on and off the Western Australian shores,' O'Brien said. ‘Today I want to give a clear indication to everyone who's an interested party – and indeed, everyone in Western Australia needs to be an interested party – this state government is going to do all it can to encourage a greater level of Western Australia engineering and design expertise in the resources sector.'

O'Brien said some A$14.5 billion in resource industry contracts had been awarded to local firms since July 2011, when the Western Australian government launched a new local content framework. The state government, he said, will provide funding to groups working to identify opportunities for local pre-FEED and FEED work.

‘Any success in attracting engineering work to Western Australia also has positive spinoffs for other local manufacturers, as local engineers become more familiar, for example, with the skills of our fabricators here in Western Australia,' he said.

‘This is about doing some practical things to involve a far wider selection and cross-section of our community, of our industry, of our local workshops, in the international supply chain by getting Western Australians involved even before projects commence.'

Chris Walton, CEO of the Association of Professional Engineers, Scientists & Managers Australia, said the state has lost ground as operators opt to conduct FEED and detailed engineering in lower-cost locations.

‘If we design it here, we have more chance of building it here – more work for our steel fabricators, and a more sustainable economic future for this state,' Walton said. ‘The fact is, we have been not getting adequate work from the resource boom over recent years, with a 59% increase in the import of engineering services despite us having world class firms such as Clough, WorleyParsons, SKM, Hatch and many others.'

The state government should negotiate with industry groups ‘to ensure there really is a full, fair and reasonable opportunity to win work', he said. ‘Not a full, fair and reasonable opportunity to put in tenders and spend a lot of time doing tender work that has no chance of getting a result, but a real opportunity to win work.

‘If we get this right, we're more than just a sandpit for China. This state is actually going to be innovative. It's going to really have a sustainable future with a diverse economy. It's going to maximize the opportunities from the resource boom.'

Categories: Activity LNG

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