High labour costs weigh heavily on Australian energy sector

The good and the great of Australia’s oil and gas sector have complained to political leaders that rising labour costs are adversely affecting future investment in the sector.

With A$250 billion of successful liquefied natural gas (LNG) projects in recent years, Australia has become an energy superpower.

But, sector leaders have warned the Federal and State governments that a further A$100 to A$180 billion of LNG projects are at risk because of rising regulatory and labour costs.

For the second year in a row, energy executives used the Australian Petroleum Production and Exploration Association (APPEA) annual conference to state their case to politicians.

Australia’s largest independent oil and gas company Woodside led the charge, with its chairman, Michael Chaney, saying long-term structural change was needed if the sector was to continue serving the gas-hungry markets of Asia.

Mr Chaney acknowledged the support of the Federal and State governments to make Western Australia the world’s largest supplier of LNG, but said the current regulatory burden needed to be removed, citing the company’s Pluto LNG project that required 500 separate regulatory approvals as an example of the problem.

He said the high wage structure was not matched by high productivity and it was time to overhaul Australia’s 2009 Fair Work Act.

According to APPEA, an offshore barge welder could earn almost A$400,000 including superannuation, and a cook could earn A$350,000.

APPEA chairman, Rob Cole, echoed the call, saying other parts of the world could deliver LNG projects 20 to 30 per cent cheaper than Australia. The answer was to reduce costs and increase productivity, and stop workforce relations debate becoming a political football.

However, Western Australia’s Premier Hon Colin Barnett said the sector needed to improve its public positioning and the way it interacted with government.

As owners of the resource, governments were effectively commercial partners in the energy sector.

Mr Barnett said energy companies spent time getting a social licence to operate, but the ultimate licence was the one granted by governments.

The Premier was concerned about the increasing use of floating LNG ships which could extract, produce and export Australian gas at sea without the need for any onshore activity (and jobs).

He also pointed to the ‘PR disaster’ of coal seam gas on the East Coast and related environmental concerns, as well as the shortage of domestic gas supply amid massive export growth.

A lot of hot air will be expelled in future months and years before Australia’s energy sector leaders and politicians see eye to eye. And the unions haven’t even waded into the debate yet.

Raphael Hilbron heads SenateSHJ's energy practice.