High Labour Costs Could Scupper Gorgon LNG Expansion 1

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Tuesday, April 8th, 2014
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The exorbitant cost of labour in Australia threatens to expansion plans for the Gorgon LNG project – the country’s largest ever resource development.

Roy Krzywosinski, managing director of Chevron Australia, said that high labour costs in Australia were a critical factor in any decision the energy giant will make about the future of the Gorgon LNG project.

“This weighs heavily on Chevron and its partners as we consider a fourth train of expansion of Gorgon,” Krzywosinski said in Perth at the APPEA conference, the southern hemisphere’s largest annual event for the upstream oil and gas industries.

Roy Kryzwosinski

Roy Kryzwosinski

Chevron’s USD$54 billion Gorgon LNG project is the single largest resource undertaking in Australia’s history, involving the development of the Greater Gorgon gas fields, situated between 130 and 220 kilometres off the northern coastline of Western Australia.

Krzywosinski noted out that the Gorgon project is approximately 40 per cent more expensive than similar projects being undertaken by Chevron in the Gulf of Mexico, as a result of the surging cost of goods and services in Australia.

Krzywosinski said that an expansion of the Gorgon project would only be implemented if cost levels were “corrected,” and collaboration between various stakeholders could be achieved.

“To enable these projects to move forward it will require industry, government, buyers, sellers and unions to come together,” he said.

Krzywosinski had highly critical words for the unions and their influence over labour costs in Australia, saying that wages for certain trades had doubled in just the past six years, rising to as high as $400,000 per annum.

“Unions have leveraged significant and unsustainable wages and conditions hikes over recent years,” he said to APPEA delegates.

“Wages earned by workers in the maritime industry have more than tripled relative to the consumer price index over the past decade…this wage growth is what is currently crippling Australian industry and is simply not sustainable.”

Krzywosinski voiced his support for APPEA’s call to amend legislation conducive to short-term project labour agreements, complaining of a “ratcheting” effect which causes the end point for one agreement to serve as the starting one for the next. 

He also called for the reform of the Fair Work Act ‘s provisions on the right of entry for unions, which he said have caused nearly 1000 disruptive visits to the Gorgon project since 2009.

 

 

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  1. Chris

    Err, I find much of Chevrons problems of their own making. Much of Gorgon is modularized and came in from low cost countries. I would also say poor upfront cost estimates and poor project management & execution plans are also to blame for a large percentage of the costs. As for unsustainable wages, all the big companies in the West have been guilty of this because they wanted their project finished "yesterday" so they can make money. It's okay to poach another projects site workers so your project can be completed ASAP.
    Yes some of the onsite workers are out of control, but Chevron cannot totally blame the local workforce.