AUSTRALIA

No more 'fat, dumb and happy': Bennett

CLOUGH CEO Peter Bennett says Australia's oil and gas sector needs a serious attitude change to c...

No more 'fat, dumb and happy': Bennett

Analysts predict the world will need additional LNG supplies of 20 million tonnes per annum by 2023, a further 45MMtpa by 2025, and then another 84MMtpa by 2032, Bennett told the WA Petroleum Club earlier this month.

"If we're going to be able to take our fair share of that market we need to be able to get competitive on that global stage," he said.

"North America right now can produce an LNG facility for something like 40% less (cost) than we can in Australia".

For Australia to be competitive, costs need to be cut, according to Bennett, as increases in Australia have far exceeded the global industry.

"What initially looked like a portfolio of $100 billion of investment in the LNG projects that are going through completion at the moment blew out to something like $210 billion," he said.

Bennett said this increase had caused $150 billion of projects in Australia to be stalled or killed entirely.

"We all got a little bit costly and inefficient, and frankly fat, dumb and happy through the boom times," he said.

"As Paul Keating said, this might be the recession we needed to have. This sort of tough price environment … forces us to be more efficient, be more effective and be innovative.

"Whilst we don't like it, it's very painful as were working our way through it, I think we'll come out the other side better for it."

Construction costs blow out

He cited Oxford Institute for Energy Studies data which showed that what the upstream industry bought for $100 in 2000 cost $233 in 2014.

Bennett said upstream costs have since come back down to 2007 levels, mainly due to project cancellations and the "big slash and burns" conducted by both owners and contractors.

These costs were still historically high, and the cost cutting activities already implemented had started to run out of steam, he said.

The Oxford IES compared the cost of Australian megaprojects to average historical costs.

Australian projects were more expensive in all areas, but the difference in construction was massive, while the increased cost in the engineering and procurement were more modest.

"At the peak on some of the projects in the big boom period recently … [construction] costs were running up to $500 million a month," Bennett said.

He said the industry needs to do more than the standard responses of operators asking contractors to reduce rates and workforce reductions.

"We've done that before but it's not sustainable," he said.

Collaboration time

Bennett cited efforts in the North Sea in the 1990s as an example Australia could follow.

In the CRINE initiative, operators and contractors collaborated to determine how to drive costs out of project developments.

"Contractors can add a lot of value with clients, we see a lot of different innovation in the industry, and we need to be able to have the opportunity to bring it to bear," he said.

Bennett gave an example of what collaboration can achieve from the Queensland CSG fields.

Clough was charged with reducing the size of wellhead metering skids from four over-sized loads to a single standard container.

They overachieved, and now eight skids can fit into a container. A significant difference for an item used in the thousands.

He said these cost reduction efforts must be scheduled and resourced early in the project lifecycle to gain maximum benefit.

Bennett identified compliance with corporate requirements as one of the challenges to industry collaboration.

Prescriptive requirements from the operators left little room for innovation, he said.

Another issue was Australian standards being different to the main international standards.

"If you had to … think of how much the Australia Standard requirements for electricals cost the industry over the years it would be horrendous," he said.

Every project had major rewiring required to bring in imported electrical equipment, he said.

"It might meet standards that work perfectly well in Western Europe or the US or anywhere else in the world … but it's got to be different in Australia," he said.

"We need to ask ourselves why."

At the last APPEA conference, Bennet recalled that an international vendor said they found the Australian industry to be slow at implementing new technologies and innovations.

"As an Australian, firstly I was affronted, because we feel we are very open minded and adaptable, but maybe that perception not always 100% correct.

"We need to find some way to bring the collective intelligence and innovation of this industry together and start to take advantage of it," Bennett said.

Failure to do so means Australia may not get as big a share as it should of the additional LNG production needed.

"That would be a crying shame for us," he said.

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