Standing at one of the world’s most isolated vantage points, Ben and Pete look south to Antarctica from stunning Greens Pool on Western Australia’s south coast.
Their backs are to the camera. A confidentiality agreement with their employers has seen to that. But the pair are willing to talk off the record about their lives as high-paid fly-in-fly-out (FIFO) workers on the $100-billion worth of liquid natural gas plants being built in W.A.
It’s a good life. Pete, 32, a boilermaker on Chevron’s $52-billion Gorgon project, earns $150,000 a year and gets three months off.
Ben, 35, a member of the powerful Marine Union of Australia (MUA), works on a tug boat operating out of Dampier on the northwest coast of W.A. and pulls in $170,000 a year.
“I worked on Pluto (Woodside Petroleum’s recently completed LNG plant) and Gorgon is starting to take off now,” said Pete, dressed in the Australian standard sunglasses, surf-brand T-shirt, board shorts and flip-flops.
Ben and Pete are happy with their lot. The two men own houses, nice vehicles and boats and travel at will. FIFO workers make up 50 per cent of the W.A. resource industry workforce, taking their wealth every two weeks from the work site to wherever they live.
But the pair agree there is a dark side to their success: fixed-income workers in traditional labour fields such as policing, teaching and nursing are facing soaring living costs.
“It’s wreckin’ Australia’s cost of living,” said Ben, with a distinctive Aussie drawl. “If you aren’t in the pie, how do you survive?”
The British Columbia government has pegged the province’s future on an LNG industry it claims will wipe out provincial debt, create tens of thousands of jobs and generate billions of dollars over the next 30 years in taxes and royalties.
MASSIVE INCREASE IN COST OF LIVING
But as W.A.’s economy has boomed, so too has the cost of living.
House prices tripled between 2000 and 2013 and the small things cost more. A cup of coffee in Perth sets you back $5 and a jug of beer costs at least $21.
Rents in the LNG-driven northern towns of Karratha and Dampier can go for $6,000 a month for a three-bedroom house while Perth’s rental vacancy rate is close to zero. This makes life harder for people on fixed incomes.
Project developers are struggling to contain costs and despite W.A.’s massive and growing LNG industry, the state's debt has never been higher.
W.A. is where British Columbia should look to learn how to — and how not to — transition into an LNG economy.
Peter Strachan is a Perth-based LNG analyst who has no doubt that Asian-driven demand for LNG will increase with the enormous amount of the product set to come on line over the next decade.
But the lanky MBA and former world traveller said the B.C. government must be mindful of inflationary pressures that come with LNG mega-projects.
“What you will see in B.C. are the guys arriving wearing big belts with big buckles and hats earning big bucks,” said Strachan, sitting in a café overlooking Perth’s Cottesloe Beach.
“Those are the guys who will put pressure on housing, schools and infrastructure like what we’ve seen in Perth. You have pressure from the FIFO guys, like chefs making $300,000 a year, but there are also thousands of engineers working in Perth and all their kids go to private schools. So the private schools get bigger and fees go up. But you’ve still got people on a fixed income making $74,000 a year.
“So five per cent of the community are better off because of higher incomes from a high level of investment in a small sector of the community, in this case LNG. Maybe 10 per cent break even and the other 85 per cent are worse off. They don’t get the same sort of income increases as those directly involved in the area of investment, yet their cost of living rises. Costs of rent, food service and utilities rise for everyone as more infrastructure is required to meet the needs of a rapid jump in population.”
W.A. has the fastest growing population of any Australian state, with an increase of 85,000 in 2012 to 2.5 million.
RISING DEBT IN WESTERN AUSTRALIA
Strachan also warns British Columbians to be wary of any government promise that LNG royalties will wipe out provincial debt. He said when the first shipment of LNG departed W.A. shores for Japan in 1989 the state government had no debt.
As of June 2013, W.A.’s debt was $18.4 billion and is expected to increase to $28.4 billion by 2017 due to infrastructure spending.
Last Tuesday, Minister for Natural Gas Development Rich Coleman said B.C.’s $40 billion debt will be wiped out in 15 years if four LNG plants are built.
Coleman said some countries, while not pointing to Australia, had used revenues from LNG to go on a spending spree and that’s something his government would avoid.
“It’s about how you manage your operations,” Coleman said.
B.C. Premier Christy Clark is currently in Asia pitching the province’s LNG dream while the B.C. government works on a corporate income-tax regime that would apply to LNG exporters.
Those details will be presented by the end of the year to the various groups interested in developing an LNG plant.
Coleman accepted the risk of cost-of-living rises in the wake of construction investment but added once that five-year phase is over, the economy would settle down.
He also added that, unlike Australia, which has a limited labour pool leading to higher wages, B.C. will have access to a North American workforce. The government is also doing its best to ensure there are enough tradespeople for the expected LNG construction. The key LNG proponents are expected to make their Final Investment Decisions by the end of 2014. That would mean the first shipment of LNG would occur in 2019.
Simon Fraser University economics professor Rick Harris said the W.A. government needed to spend a lot more on infrastructure than he expects will need to be spent in B.C. He said it is impossible to know right now how much the government will earn from LNG and what impact that will have on provincial debt.
“It depends on the price of natural gas and a lot of things. I have no idea how you can forecast it,” he said.
Harris is fairly sure, though, that the cost of living will go up, especially in Prince George, Terrace, Kitimat and Prince Rupert.
INFRASTRUCTURE SPENDING INEVITABLE
“Booms raise incomes and some people get left behind,” he said.
Strachan thinks Canada’s political stability, lower labour costs and cold climate — which make it cheaper to chill the natural gas to LNG form — will work in its favour when it comes to LNG, but said infrastructure spending will be unavoidable.
An example of government infrastructure cost in W.A. is the $370 million, 40-hectare Common User Facility at the Australian Marine Centre in Henderson, 45 minutes drive south of Perth.
The AMC CUF was created in 2003 as a base for businesses wanting to compete for LNG tenders and maritime projects. Thousands of tonnes of equipment — from monster concrete caissons to complex control gear for the gas coolers — is put together at the AMC and loaded on barges for the three-day trip north.
In W.A. everything is huge, from the $100 billion being spent on LNG, to the 200-tonne capacity road network, the 12,000-tonne floating dock at the AMC and the $11 hamburger sold at Perth’s Scarborough Beach.
“Gas is driving a massive proportion of our work,” said Jonathan Smith, general manager at the AMC. “They call it oil and gas, but really it’s gas and oil.”
Smith said the biggest challenge for the companies developing LNG plants in W.A. (which includes Shell’s first-ever floating LNG facility) is the remoteness of the projects and the resulting impact on costs, including supply-chain logistics and labour.
“Without recognizing these issues, costs can be very difficult to control and that causes problems,” he said.
Alberta-based project manager Kevin Wilson, who spent 18 months working in the Western Australian resource sector, said there’s another thing that can impact productivity.
It’s called mateship.
Wilson told The Province the “culture of mateship” is based on a strong union movement and a general disdain for authority.
“Aussies are not like us,” Wilson said. “If someone is tapped on the shoulder to supervise they are loath to do it because they don’t want to supervise their mates.”
Mark Pownall, executive editor at Business News Western Australia, has been writing and editing LNG news since the late 1980s.
Pownall is well dressed by Aussie standards, with white shirt and cufflinks. He stands amid his six-person reporting team debating the cover of the next print edition.
What’s news today is Shell’s bid to build the largest ship ever to liquefy gas offshore.
“It’s a ship, but they are calling it a barge to get around the MUA. Stupid things like that go on here,” said the laconic Aussie in BN’s North Perth boardroom.
He said construction costs remain a huge issue for the gas players developing LNG plants.
“Gorgon started at $43 billion and it’s already more than $52 billion. Steel has become more expensive and you have 6,000 people working there for three years and every guy is working nine months a year. No one earns less than $150,000 a year and lots make $300,000 a year.”
'THE PARTY'S NOT OVER'
Pownall said it’s only since 2005 that LNG has been on the public’s mind as people tried to figure why their cost of living was going up.
“It’s been largely overlooked, but we are set to become the second largest LNG exporter in the world behind Qatar,” he said.
“B.C. might be coming late to the party, but the party’s not over. Why wouldn’t you want to diversify the economy with cleaner energy? It’s a stable industry and insulated and long term. Even if the U.S. wants to completely open up its doors there is still strong demand.”
Dana Benner, Calgary-based head of research for Altacorp, is closely monitoring B.C.’s ambitious LNG plans and said action needs to be taken quickly. He agrees with Pownall about demand, but warns things need to move swiftly.
“There is enough demand as long as B.C. moves in an efficient way. There is a window and a lot of competition,” he said.
KEY PLAYERS IN B.C. LiIQUID NATURAL GAS
Pacific Northwest LNG is led by the Malaysian government’s PETRONAS and is expected to produce 10 million tonnes per annum at a plant on Lelu Island north of Prince Rupert. Initial engineering work is underway with a Final Investment Decision expected in late 2014. The project would begin export at the start of 2019.
Kitimat LNG is a Chevron-led joint venture investigating construction of a 10 mtpa LNG plant on Haisla Nation land at Bish Cove west of Kitimat. The project has an export permit and has been in the works since 2004 when it was intially proposed as an LNG import terminal. Front-end engineering work is underway.
LNG Canada is spearheaded by Shell Canada as a 12 mtpa facility alongside the Rio Tinto Alcan smelter in Kitimat. The project recently submitted a Project Description to the B.C. and federal governments and public consulation is underway.
Prince Rupert LNG is proposed by the UK-based BG Group as a 14 mtpa facility on Ridley Island near Prince Rupert. A Final Investment Decision is expected in 2015.
Aurora LNG is a Chinese-government led (CNOOC) project that recently won access to crown land at Grassy Point north of Prince Rupert. This project does not have an export permit and the CNOOC CEO said this month there is a “long process ahead.”
WESTERN AUSTRALIA
Size: 2.5 million square kilometres.
Population: 2.5 million.
Population of capital (Perth): 1.9 million.
State debt: $28 billion.
Driving distance from Perth to LNG plants: 1,500 km.
BRITISH COLUMBIA
Size: 945,000 square kilometres
Population: 4.6 million.
Population of Metro Vancouver: 2.5 million.
Provincial debt: $40 billion.
Driving distance from Vancouver to proposed LNG plants: 1,500 km
