JUST last month Perth was the centre of the liquefied natural gas world. Over the course of a week in April, producers, buyers, suppliers, dealers, economists, analysts and technical experts descended on the city from across the globe for the LNG 18 Conference and Exhibition.
The timing for such an event to be hosted in Australia is not lost on those working in the sector.
Australia, with over A$200 billion in new and existing projects, is set to emerge as the world’s largest LNG exporting nation by 2020.
The scale and speed to production of these projects, many at a time when the global economy was stuttering, is nothing short of incredible.
Hidden amongst the Australian LNG story, are a myriad of invaluable lessons in creating that success, the issues and challenges they faced that have tested the best local and global players.
A recent report from Deloitte, The good, the bad and the ugly: The changing face of Australia’s LNG production, took a deeper dive into lessons learned from the build-out, especially from the past five years of construction.
Through a series of interviews, a number of Australian LNG leaders identified what they would do differently if they could; what the industry must never do again; and what leading practices have emerged that, in their views, should become part and parcel of any future LNG project.
Successful practices to repeat include:
Stimulate innovation and embrace new thinking: Industry-leading innovations have paved the way for further development of unconventional deposits around the world.
The oil and gas industry is a high-tech industry and innovation will always be critical to ongoing viability and prosperity
Focus on employee conditions and engagement: Pioneering the use of technology to improve work conditions has given employees and their families greater opportunities to live in desirable locations
Amass an excellent record on health, safety and environmental performance: Oil and gas companies have collaborated to maintain the integrity of gas infrastructure and preserve local environments and property, often exceeding government standards.
Practices that should be done differently:
Better manage the implications of concurrent projects: The consequences of several independent projects prosecuting a similar resource in parallel and a failure to collaborate in some instances has led to a dramatic over-building of infrastructure
Take a long-term, collaborative approach to working with local communities: Addressing health, safety and environmental concerns early could have reduced additional regulation
Build a trading function from the outset: A relatively new proposition for the industry, learning curves can be shortened by soliciting input from other sectors, such as power and mining, which have already developed robust trading mechanisms
Manage contractors more effectively: Defining the project scope tightly, processing change requests quickly, resolving discrepancies promptly and having the right team in place to manage contractors with more diligence are all critical.
Practices the industry must never pursue again include:
Getting swept up in groundswells of enthusiasm and “get it done at all costs” mentalities: Establishing a productivity-based culture and focusing on asset efficiency is imperative. Smaller-scale projects, using brownfields and existing infrastructure, or thinking innovatively about leveraging existing transport methods, can all help avoid cost escalation and schedule over-runs
Underestimating the industry’s collective impact on local markets: The industry must think very carefully about the long-term impact of its activities on local markets for labour, equipment and services. There may be instances when companies could work more closely with government agencies and unions to avoid uncontrollable cost escalations
Using legally driven frameworks as primary methods for assuring access to the resource: A detached approach can easily backfire. The right alternative is to be a friendly and approachable neighbour and approach land-owners and other stakeholders as partners in business
Going it alone: Competition is global, not local. Developers could have shared more infrastructure to minimise costs and better position them to compete more effectively with the rest of the world.
The general consensus is most Australian LNG projects will turn out to be positive endeavours over the long-term, but there will be a lot of pain in getting there.
Nevertheless, the lessons learned from the largest simultaneous LNG build-out in the world will be invaluable to oil and gas companies as they move forward on future ventures.
At the core is from finding new and better ways to collaborate.
Many of the things that haven’t gone as well as planned for LNG developers in Australia could have been avoided through greater cooperation and a more standardised approach.
While regulatory and policy conditions differ greatly throughout the world, the first step to greater collaboration simply involves a change in perspective from viewing an LNG project in competitive isolation to seeing it as part of a vibrant, global energy ecosystem.
From this perspective, the long-term outlook for LNG is quite bright as the world continues to shift toward cleaner forms of energy.
The current oil price downturn, while painful, could be a blessing in disguise since it is motivating operators to learn from the past and to innovate for the future, which in combination could take the sector to new heights.