So, it’s suddenly a little more clear why Chevron has become an election football:
As Chevron’s $52 billion Gorgon project became embroiled in the election campaign, trade union officials accused Chevron of seeking to dodge responsibility for poor labour productivity and high costs.
The union’s demands for employees working for 19 offshore oil and gas contractors around Australia include a 26 per cent raise over four years, no foreign labour without consultation, union control of hiring and four weeks holiday for every four weeks work.
Federal Energy Minister Gary Gray, who is under pressure in his Western Australia seat of Brand, said oil and gas companies were failing to control the costs of their staff and contractors.
“We do need our companies to get better in managing their productivity issues,” he said.
In Monday’s Australian Financial Review, Chevron Australia managing director Roy Krzywosinski said Australia has a two-year window to get policy settings right and fix industrial relations and productivity or risk losing out on billions of further investment in liquefied natural gas projects.
…The Coalition has already started taking steps to re-establish the Australian Building and Construction Commission, which could be used by the new federal government to help companies like Chevron overcome resistance from the union movement while they build expensive projects…Opposition resources spokesman Ian Macfarlane said the commission would be the “cop on the beat” of big projects.
…Paul Howes, national secretary of the Australian Workers’ Union, said: “I don’t see Chevron struggling to make a profit. I do not have a lot of sympathy in what is a supply-demand situation for the workforce. When there is a shortage of labour the labour is more expensive.”
My view is that both sides have a point. The investment surge in LNG – often favourably compared with the Apollo moon program in its magnitude – is in some ways a bubble. Firms have rushed in, extrapolated an endless supply/demand imbalance for their product, ignored global competition, over-paid for assets and developed with little thought to what others were doing, grossly inflating input costs in the process. As a result Gorgon and every other project can’t land gas into north Asia for much less than $12 mmbtu. Compare that with yesteryear’s NW Shelf:
The US can match and beat these prices.
There other signs of an investment bubble too. According to Paul O’Malley, CEO of Blue Scope Steel:
“Very quickly after the election, we need the policymakers to get all the facts so they can look at the pros and cons of whether there’s reservation or no reservation, whether there should be improved ease of exploration and supply, whether there’s new pipelines needed,” he said.
…”If you look at energy costs (for BlueScope), the big factor is going to be gas and just the fact that natural gas prices are increasing,” the BlueScope boss said.
“We’re a bit challenged by that and we’re a bit challenged by the fact that LNG (producers) probably overestimated the amount of gas they’d be able to access and now they are taking it from residential and commercial-industrial users in Australia.”
This fallout is typical of the “built it and they will come” attitude that seized energy and mining executives in the final stages of the “commodity super cycle” boom. A similar story, with different dynamics, is playing out in coal and next year in iron ore.
The unions are largely not to blame for the cost blowouts even if they are a party to them. They are, after all, unions. What does capital think will happen if it hands them such a card to play?
I support the LNP’s move to reinstate the Australian Building and Construction Commission, and no doubt it can take some of the froth off the labour bubble that management has created. But there’s not much it will be able to do about genuine supply and demand imbalance. Only falling investment will do that.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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It’s hard to know whether the union demands are unreasonable without some context. What is the current pay and when did it last increase, what are the hours and expectations. An offshore oil platform is an isolated and, at times, dangerous place where specialist skills are needed. Four weeks on and four weeks off might be reasonable, if you are working in the tropics in the wet season for 16 hours each day.
I struggle to understand union control of hiring however. Some sort of consultation, maybe makes sense if it is about ensuring a cohesive work unit given the isolation.
I agree but the fact that such demands are possible tells you something about the current bargaining power of labour.
Unions have a lot to answer for in labour productivity, when forklift drivers on $140K are striking for pay increases something has gone wrong in the labour market.
Workers should definitely get a share of massive profits, but the unions refuse to accept paycuts when commodity prices crash.
It’s also a failure by company boards who barely put up a fight or even explain why payrises should be moderated during good times in order to avoid any sort of industrial conflict.
A reasonable system would see a healthy base wage with the rest determined by the underlying commodity price. It would provide job security for workers and investment certainty for business.
“An offshore oil platform is an isolated and, at times, dangerous place where specialist skills are needed.”
Indeed, a comparison with the North Sea and the Gulf of Mexico may be in order.
http://www.independent.co.uk/news/business/news/britains-north-sea-rig-workers-are-in-the-money-as-oil-pay-gushes-up-7079722.html
“A typical North Sea worker earns an average of £540 a day, while someone at director level employed on a rig there can command around £900 a day, according to the recruitment group Hays.”
One cannot see a cook on a North sea rig getting
http://www.perthnow.com.au/news/western-australia/gas-plant-cooks-want-230000/story-fnhocxo3-1226642040247
Capital is being held to ransom.
Bill ‘all the way with the MUA’ Shorten recently expressed enthusiastic solidarity with MUA militancy – now time for him to man up and tell them to pull their heads in and fuck off – in the greater interest of the Australian resource sector and the Australian economy.
Most recent MUA claims have been rejected by Fairwork and the union is renowned for vexatious excessive calls and bloody mindedness. It is currently securing control of Labor in WA and working toward a similar goal federally. It is not only harassing Chevron but all LNG projects around the nation – in effect making FLNG the go to preference in the future.
Funny how capitalism doesn’t work for you when the boot is on the other foot.
What we really needed was a way to prevent this boom from becoming a bubble – like a big, fat mining tax.
Well we’ve got the tax .
I assume you mean union thuggery is the other boot of capitalism. Just as there is legislative power to limit corporate excess so too should there be power to limit union excess. The extraordinary thing is that no one from Labor has publicly expressed concern (Gary Gray is mortified) at the destructive actions of the MUA across the nation.
Labor has now exposed itself as only a vessel of the unions where self interest overrides national interest.
No, what I mean is the laws of supply and demand cut both ways. Management blew this bubble, not the unions. Though I agree they’re thugs and need regulation.
Unions are always there to be held to account for the incompetence, or otherwise, of the owners and management. It has been this way since the UK decided to sabotage their industries in the 60s and 70s so they could send industry east to Japan.
Woodside FLNG
http://www.woodside.com.au/Investors-Media/Announcements/Documents/20.08.13%20Woodside%20Recommends%20Floating%20LNG%20for%20Browse.pdf
This is all moot. China is now doing FLNG: http://www.reuters.com/article/2013/08/14/china-cnooc-lng-idUSL4N0GF24C20130814
“As a result Gorgon and every other project can’t land gas into north Asia for much less than $12 mmbtu. Compare that with yesteryear’s NW Shelf:”
But is not something similar true of almost every extractable commodity, whether it is oil, gas, iron ore, coal, copper, etc, etc. That projects completed over the last 5 years are typically much more expensive producers than projects completed more than say 8 years ago, depletion aside of course.
And while talking about the NW Shelf they have some serious depletion issues that they are going to have to solve in the next two decades, which will push them significantly up the cost curve. I suspect something similar will also occur with many of the other “low cost” LNG producers in the graph. Pushing them up the cost curve also, as they are required to source gas from further afield to keep very expensive (too replace, note however many off these plants have already been paid off many times over by returns) plant investment supplied with gas.