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Asian Petroleum Review : Jan-March 2011
Australia's expanding liquefied natural gas (LNG) industry could face large labour cost blowouts as new projects struggle to fill thousands of jobs from a heavily unionized workforce whose ranks are already being thinned by retiring baby boomers. By making projects more expensive and stretch- ing timelines, the scramble for workers will make gas more costly for buyers and force projects to share infrastructure, coordinate development strategies and perhaps even force consolidation eventually. Australia's environmental approval for BG Group's $15 billion Queensland liquefied natural gas (LNG) project paves the way for construction, but it faces escalating costs as a boom in LNG projects boosts competition for a unionized workforce. Labour costs for Australian LNG projects can make up as much as 40 percent of a project's total cost, several analysts say, and union de- mands can easily cause those costs to balloon. While union clout in some countries has waned after the global financial crisis, Australia's unions have remained powerful, thanks to the nation's resource boom. Earlier this year, Woodside's Pluto I project in West- ern Australia faced rolling strikes, which could lead to significant cost overruns and delays. "When there is such a strong demand for labour, workers can demand more - - and do so. It's relatively easy for labour to put some pressure on employers because the labour supply is so tight," said Tony Regan, an analyst with Tri-Zen International in Sin- gapore. Cost overruns of more than 10 percent on LNG pro- jects are not unusual and a tight labour market would push expenses even higher, but industry ana- lysts say they are tough to estimate without knowing what contingencies companies have factored in. The LNG expansion, which will see at least 10 pro- posed projects built through 2017, coincides with a wave of growth across Australia's resource sector as it tries to meet ravenous demand from giant Asian economies such as China and India. RESOURCE BOOM Australia's mining and energy sectors have a history of driving inflated housing markets and poaching skilled labour from other industries with six-figure salaries - - highlighted by anecdotes of recruiters trawling bars for workers to sign up prospects on the spot. Australia labour woes to fuel LNG project costs By Rebekah Kebede PERTH "There is no doubt that there is going to be a labour issue. It's going to be one of the big- gest issues for the sector " - Graeme Carson, Patersons