By Andrew Hobbs, Group Editor
THE QUESTION of how to boost Australia’s competitiveness in the global oil and gas industry dominated the 2014 Australian Petroleum Production and Exploration Association Conference, with a number of strategies proposed.
Amid a series of calls for a unified approach, Deloitte Oil and Gas Lead Mike Lynn told Oil and Gas Australia there remained uncertainty about how best to address the issues Australia is facing.
“I think that’s the one thing I walk away from today still not closer to an answer as to how as an industry do we address some of these competiveness and productivity concerns,” he said.
“They keep getting raised as questions but [there’s] not that much discussion around tangible answers at an individual, organisational, or state or national level.”
APPEA itself, through chief executive David Byers, proposed changes to Australia’s Fair Work Act as a key way to drive growth in productivity.
Mr Byers said existing workplace laws meant project owners could not be confident about the cost of labour over the full life-span of construction – instead facilitating the continued ratcheting up of wages and allowances.
“Reform is urgently needed or we risk losing the next wave of LNG investment that could create 150,000 Australian jobs,” he said.
Specifically, the APPEA report recommended the Government develop a new form of enterprise agreement which would apply to major capital projects, including LNG plants.
Such agreements would apply for the entire period of project construction and require negotiations to be specific to the individual circumstances of major projects, as well as applying for the entire period of project construction – rather than being renegotiated every four years.
Other reforms recommended by APPEA were bigger fines for unlawful industrial action, raising the threshold for protected industrial action and changing right of entry provisions, as well as reintroducing the Australian Building and Construction Commission.
The group also called for the abolition of additional regulatory requirements introduced as part of the Australian Jobs Act 2013 and removing labour market testing requirements introduced under the subclass 457 visa program.
Boosting Australian productivity was also an issue for PricewaterhouseCoopers’ Energy, Utilities and Mining leader Australia Jock O’Callaghan, who said high production costs could threaten export markets for new LNG capacity.
“Unfortunately Australia does not have a great track record in delivering productivity improvement … sadly it still remains a topic too readily portrayed as an issue around costs,” he said.
Speaking to the Best in Class: How upstream gas can work smarter report, developed by PwC and Strategy&, Mr O’Callaghan said upstream issues were often cited as a cause of capital expenditure blowouts.
Specifically, Australian capabilities in well delivery, operations, procurement and supply chain lagged behind the “best-in-class” overseas operations, Mr O’Callaghan said.
He called on industry to adopt a lean manufacturing mindset – treating development like a set of repeatable, scalable processes with a continuous improvement feedback loop.
Industry should make explicit investments in innovation, rather than trying to adopt technologies developed elsewhere, and collaborate more broadly across the industry and its value chain.
Governments should also encourage collaborative innovation, as well as adopting a more customer-focused view as to how it engages with industry, the report said.
“In Australia a blanket increase to innovation funding from the government is not the answer,” Mr O’Callaghan said.
“What is needed is a focus on creating an environment that encourages the development of truly groundbreaking innovation that increases our competitive advantage.”
Boston Consulting Group’s Alan Thomson, the management consulting firm’s North American oil and gas practice group leader, echoed the sentiment, saying Australia’s upstream sector was well behind in the innovative stakes.
“Australia has about 3.4 per cent of OECD petroleum production, which is set to rise sharply in the next few years,” he said.
“But in the past decade, Australia has accounted for only 1% of inventions, as measured by patent activity.”
“Looked at another way, Australia spends about US$150 million annually on upstream research and development, which is a very small fraction of the US$5 billion plus invested by the world’s top ten oil and gas companies.”
The relative youth of Australia’s petroleum production had meant the nation was able to import technologies developed overseas, but Mr Thomson said a bigger research and development effort could make a material improvement to Australian competitiveness.
“Innovation is key to reducing costs, which of course is one of the major challenges for the next wave of LNG projects currently on the drawing board.”
“Government could play a constructive role through targeted grants or additional subsidies for tightly defined R&D initiatives.”
“There is also a lot that industry can do for itself,” Mr Thomson added.
“In Australia, one of the key challenges is to create a critical mass that can more easily support R&D. The fastest way to achieve that is through collaboration, which means industry players sharing the cost of investing in innovation and the benefits.”
For Mr Lynn, the fact that APPEA attendees were willing to discuss difficult questions was a big step forward – moving away from a determination to use rose coloured glasses.
“I think people are seeing the need to actually collaborate extensively across the value chain and I think it’s becoming more than just words,” he told Oil & Gas Australia.
“We’ve got our national regulatory issues, our state issues, we’ve got community interest groups, we’ve got competing operators that need to collaborate in order to be cost competitive against other threats from North America and East Africa so it’s a multi-pronged, complex and dynamic environment so all solutions have to feed into the bigger jigsaw puzzle.”
“What I hear now is a call for action,” he said.