Gorgon leaves big query over jobs

BY MATHEW MURPHY

It has been dubbed Western Australia's own stimulus package, but the value of most contracts awarded so far in the $43 billion Gorgon liquefied natural gas project will either head overseas or cannot be guaranteed to include Australian content and local jobs.

A BusinessDay analysis of the $10.5 billion or so in contracts awarded to date shows that more than a quarter will head overseas, prompting calls by unions to maximise the value of the gas project to benefit its owners - the Australian public.

The Australian Workers Union says it will closely monitor the flow of contracts, with a further $2 billion expected to be announced before Christmas.

''We think projects like Gorgon should not just be beneficial for resources workers in the north-west but for manufacturing workers on the east coast as well,'' said Australian Workers Union national secretary Paul Howes. ''No one is disputing that Gorgon is big, and there will always be things that we don't make here. But where possible, Australian processes operated by Australian workers should take precedence in delivering this major Australian project.''

It is easy to get giddy by the large numbers attached to Australia's largest resource development.

Operator Chevron, and joint-venture partners ExxonMobil and Shell, will tap into the 40 trillion cubic feet of gas in the greater Gorgon field off the north-west coast.

A total of 15 million tonnes of LNG will be produced each year at Barrow Island from 2014 in the project's 30-year life. About 83 per cent has already been sold.

Chevron says it plans to spend $33 billion on local goods and services.

An ACIL Tasman report on Gorgon's economic benefits puts its contribution to Australia's gross domestic product at $64 billion and revenue to the state and federal governments at about $40 billion. At its peak, Gorgon is expected to generate 10,000 direct and indirect jobs - figures that Chevron says are ''conservative''.

It seems unnecessary to pump up the already colossal figures, but the Gorgon spin machine, and that of the Federal Government, has been in overdrive.

Take, for instance, the hundreds of billions of dollars attached to the offtake agreements. If those are to believed, then it assumes that LNG prices will rise from about $400 a tonne now to more than $1100.

Analysts forecast LNG's long-term price to reach about $600 a tonne. A $50 billion price tag was attached to ExxonMobil's 2.25 million tonnes-a-year deal with PetroChina, announced in August. But even PetroChina scoffed at whether it would amount to that much over the deal's 20 years.

''There is no such a conception of [$50 billion] in the total trade value of the agreement as some media reported,'' PetroChina's parent company, China National Petroleum, said at the time. But if gas prices are set almost to triple, and those prices are usually one-sixth of the oil price, does that mean petrol prices will also skyrocket? Perhaps that explains the Government's reluctance to break down the numbers.

Details of the carbon capture and storage part of the project, set to be a ''world demonstration of CCS technology'', are also sketchy. About 120 million tonnes of greenhouse gas will be pumped into aquifers under Barrow Island, resulting in a saving of 40 per cent in emissions. The federal and West Australian governments have agreed to accept liability if the carbon sequestration goes awry.

But there is a reluctance to speak about the likelihood of that occurring and what taxpayers could be forced to pay if there were problems.

Then there are the contracts, details of which have been subject to tight media management. Chevron said it was unable to provide figures on Australian content and Australian jobs and suggested BusinessDay call the dozens of successful contractors individually.

Many told BusinessDay they would need Chevron to sign off before providing the information. One even relayed a tale of wanting to mention the Gorgon partnership in an industry magazine. ''All we wanted to do was say how thrilled we were to be working in partnership with the Gorgon project and it took weeks for them agree to it,'' the source said.

Earlier this year, Woodside Petroleum chief Don Voelte tried to smoke out his LNG rivals by saying Australian content for such projects should run at about 55 per cent.

Not surprisingly, that is the level Woodside has achieved with its $12 billion Pluto project on the North-West Shelf, which is three-quarters complete and on track to reach $6.6 billion of Australian content.

Much of the oil and gas expertise needed for Gorgon simply has to be sourced overseas. Mitsui and Co has the contract to provide pipes and they will come from Japan because no Australian manufacturers produce clad steel pipes. The value of the contract is undisclosed.

South Korea's Hyundai Heavy Industries has been awarded a $US2.06 billion ($A2.2 billion) contract to build the plant modules, which will be shipped to Western Australia.

GE has a $US400 million contract to construct the refrigerant compression trains for carbon sequestration. These will be made in Italy and shipped from 2011.

That means at least $2.6 billion of work, plus the Mitsui deal, will go elsewhere.

A further $2.3 billion will definitely stay in Australia and boost local jobs. These companies companies supplying goods and services include Holcim Australia (cement), Compass Australia (catering and camp services), Toll Holdings (supply base), Ertech (site development) and Offshore Marine Services Alliance (tugs and barges).

The successful companies awarded the remaining $5.6 billion or so in contracts said it was too early to give figures on Australian content and jobs, or did not respond to repeated phone calls.

Australian Steel Industry chief executive Don McDonald said tenders set aside for Australian steel companies had since been redrafted to Japanese standards, effectively ruling out Australian companies like OneSteel and BlueScope Steel from bidding.

''There are about 250,000 tonnes of steel on this project and a lot of it has been awarded overseas already,'' he said.

''About 50,000 tonnes had been issued for tender with Australian standards, but Chevron changed that so it is now done by Japanese standards and sections.

''Chevron said it was to mitigate risk but we don't buy that. There is no risk in supplying 50,000 tonnes because our industry makes 1 million tonnes within that product range. If Chevron is fair dinkum about having the work placed in Australia, then they would do it to Australian sections and standards.''

Chevron has said it is committed to using Australian content where possible, but that it is too early to discuss targets.

Some analysts believe only $8 billion, or 20 per cent, will flow to Australian companies. Gorgon project general manager Colin Beckett says that figure will be more than $20 billion once all contracts have been announced.

Lack of transparency continues to taint a project that is already contributing substantially to Australia's economic growth when the rest of the world would dearly love a ''Gorgon'' to rescue it.

- © Fairfax NZ News