With several major LNG projects under way locally and rising demand in neighboring Asian countries, Western Australia's premier Colin Barnett is presiding over a pivotal moment in the state's history. He talks to Russell McCulley about the LNG boom and how he's determined to see WA reap the benefits.
Colin Barnett, the Liberal party leader and former state energy minister who was elected Western Australia's premier in 2008, calls the current climate in Western Australia ‘our third great era of development', after the 1890s gold rush and the Pilbara iron ore projects in the 1960s. ‘Now this' – the development of a rash of new liquefied natural gas projects – ‘is being driven by China, just as in the 1960s and 70s [the export of iron ore] was driven by Japan,' he says. ‘Obviously, this is not of Gulf State proportions, but Western Australia is a rapidly developing gas, and to a lesser extent, oil province.'
The Carnarvon, Browse and Bonaparte basins off Western Australia hold proven natural gas reserves of some 160tcf; Barnett has said that further discoveries could confirm reserves ‘well in excess' of 200tcf. By 2020, he says, projects currently taking shape, including Chevron's Gorgon and Woodside's Pluto, along with proposed developments such as Woodside's Browse LNG and Chevron's Wheatstone, will boost Australia's output to 60mtpa, making it the world's second largest LNG exporter after Qatar.
Western Australia, he says, is well positioned to supply Asian demand, which is forecast to more than double over the next two decades.
‘Liquefied natural gas is very much an Asian fuel,' Barnett notes. ‘The market is dominated by Asian customers; that has been the history of the industry. Western Australia is close, so we have a substantial shipping time advantage, I would say, over Qatar. And we also have an advantage of political and legal stability' – a point sharpened by recent political upheavals in the Middle East and North Africa.
‘Much of Asia is relatively deficient in resources, particularly natural energy resources,' Barnett continues. ‘So they're highly dependent on imports.' Stability of supply became a more pressing concern after the oil shocks of the 1970s, he says. And while China is rich in coal, ‘coal has its emission problems,' he says. ‘I think Asians see natural gas as an Asian fuel, a clean fuel, and also very flexible – very easy to handle, very easy to distribute.
‘I remember, probably ten years ago, talking to the then-president of Kogas, who made it very clear their policy was to use more natural gas for all those reasons, particularly to have a cleaner energy system. So it's a preferred fuel in Asia.'
Not all Western Australians are as enthused about efforts to ramp up LNG production. The Browse LNG project in particular has drawn fire from environmentalists, and was held up for some time by disputes over land rights of indigenous Aboriginal residents. In 2009, the state government signed an agreement with Woodside and the Kimberley Land Council granting preliminary approval to build an LNG facility at James Price Point, north of Broome, for processing gas from the offshore Torosa, Brecknock and Calliance fields. The agreement soon ran into trouble, however, as divisions erupted within the local Aboriginal community.
Last year, Barnett, in a controversial move, used compulsory acquisition rights to push ahead with the project. Woodside and partners BHP Billiton, BP, Chevron and Shell are expected to make a final decision to proceed with the project later this year; meanwhile, the government has vowed to continue negotiations.
‘My understanding is that close to 90% of the indigenous people were supportive of the [James Price Point] project and the benefits that came with it,' Barnett says. ‘There was a breakaway group, but they have effectively lost their legal entitlements through the court system. We had negotiations and we reached agreement, and then this breakaway group occurred. So I did take the decision that we would acquire it through a compulsory acquisition process under the Native Title Act. That was controversial, but I'm still confident we will reach a mutual agreement before that process finishes its course.'
Environmental issues dominated early discussions of the Gorgon project, a massive joint venture development by operator Chevron (47%), ExxonMobil (25%), Shell (25%) and Osaka Gas, Tokyo Gas and Chubu Electric Power Company, which together hold around 3%. The project includes a three-train LNG plant, condensate handling facilities, carbon dioxide injection facilities and associated utilities on environmentally sensitive Barrow Island, where Chevron began producing oil in 1964 (OE April 2006). ‘[Chevron's] projects here are really fundamental for the company and its future, and Gorgon is Chevron's largest project ever, either inside or outside the US,' Barnett says. ‘Gorgon project facilities are being built on Barrow Island, which has been an A-class conservation project for 100 years.' The island is a remnant of ancient Australia, long separated from the mainland. ‘So there are quite a number of species of lizards and birds and other animals and the like that only exist on Barrow Island,' he says. ‘Now it's a credit to Chevron's history as an oil producer on that island that it has stayed pristine – that it has stopped feral species from being introduced. It's been well managed.
‘I think it's interesting that the environmental standards imposed on Barrow Island are among the highest in the world, in terms of quarantine and procedures for entering and leaving the island. So it's a big test for the industry to show that you can have a major LNG project on what is not only an A-class preserve but a biodiversity and endangered species location that is of world significance. I don't think you would get an LNG project on an island off the US. It's not us taking a lower standard; I think it reflects that this community is broadly supportive of the industry, so long as the industry has the highest of standards. And I've got absolute confidence that will be the case on Barrow Island.'
Disputes over Gorgon and Browse were well under way when Barnett took office. ‘The environmental issue was the dominant one in Gorgon going onto Barrow Island,' he says. ‘The proposal in the far north in the Kimberly Coast for James Price Point – there the big issue is reaching an agreement with the traditional owners, Aboriginal people, about the use of the site. You've got two major developments: watershed issues over environment, and watershed issues over indigenous land rights. They're interesting things to be happening at once.
‘While I know the oil & gas industry may face issues like that around the world, the unique thing here is that they're dealing with a First World nation,' he says.
While operators have their eye on the LNG export market, Barnett expects domestic use of natural gas to increase. Nationwide, Australia currently uses about 1tcf per year, he says. ‘The domestic market is important. I want to see the Western Australia economy primarily fueled by natural gas. On our southwest grid system, about 60% of generation is natural gas, which is distinct from the rest of Australia, which is heavily reliant on coal. So we have a comparatively clean energy system.'
Barnett has long been a champion for the ‘value-adding' of Australia's abundant natural resources, specifically by encouraging foreign buyers to set up manufacturing plants in Western Australia and create more jobs for local workers.
Pressure point
In the meantime, there have been concerns that the flurry of LNG projects will exacerbate a skilled labor shortage in Australia. ‘That's certainly a pressure point,' Barnett says. ‘We expect – and I think it is realistic – that by 2020 our production will have basically tripled. There is a strong demand for skilled workers, particularly in construction.'
Industry fears of a serious labor crunch are ‘somewhat exaggerated', he says. ‘The Australian economy, after all, is not as strong as some might suggest. And while there are shortages in key areas, I think we will get through it. And these projects don't all happen at once.
‘There's a substantial oil & gas industry here, and workers can be trained. The skilled [labor] shortage really is on the construction stage.' Gorgon alone will require as many as 6000 workers during the construction phase, he says. ‘So that's where the crunch comes. Operationally, I think it will be fine.'
To help funnel more petroleum proceeds back into the local economy, the state has invested in infrastructure, including A$400 million to build the Australasian Marine Complex, a marine industrial facility 23km south of Perth. ‘It's a bit under-utilized at the moment,' Barnett says. ‘There is a weakness at the moment in the amount of steel fabrication taking place here. A lot of that work is being sent offshore, and that is becoming a political issue. I've had meetings with the major companies saying: "You need to make sure sufficient work flows to the local industry. Otherwise you risk losing public support for your projects."
While Western Australia may not have the capacity to construct major offshore equipment, he says, ‘there's a lot of straightforward fabrication work that could be done here. That work should not be sent off to other countries.'
Compared to the mining industry, which maintains a local content rate of 80% to 90% in Western Australia, he says, the oil & gas industry has seen local content on projects slip to 50% or less. Barnett has vowed not to regulate contracting to ensure local content, as some Labor party members advocate. ‘Nevertheless, as I remind the companies, this is not your gas,' he says. ‘You may have found it, but you don't own it.' Unlike the US, Australian law places ownership of mineral resources in the hands of the government, on behalf of the citizenry. ‘The companies have a right to extract and develop the gas, but they don't own it,' he says. ‘The Australian people, or the Western Australian people, own the gas, depending on where it is. So [companies] have a mutual responsibility to ensure that they support the growth of the local economy.'
Such investment will further Perth's goal to become the Asia Pacific region's petroleum hub. With industry support, Barnett says, ‘I think that's likely to happen.'
‘Bear in mind: Gorgon, Barrow Island, native Aboriginal negotiations – I've been very much a supporter of the industry,' he says. ‘But I expect the industry to be supportive of the local industry. And I think they will. I think the message has gone through.' OE