Local Participation Push for Major Australian Developments
Leaders of Australia's oil and gas industry are working together in an effort to develop methods towards increasing the amount of local content on major developments.
Locally based suppliers servicing the growing liquefied natural gas sector in Western Australia (WA) have expressed concern in recent years about being overlooked for development contracts.
Developers have cited the high Australian dollar, high labor costs and rising energy costs as reasons for opting to award contracts to competing foreign companies, often from Asia.
Despite these obstacles, developers have been urged to do more to increase local participation in projects.
Local suppliers are also being encouraged to develop a better understanding of the criteria to help them win contracts.
The issue was a key topic at the Australasian Oil & Gas Conference in Perth recently where industry groups, government representatives, and oil and gas companies discussed how more local participation could take place.
Paul Johnson, the Australian Government's Energy Resources Supplier Advocate, spoke at the conference and believes oil and gas developers need to take into account the capability and capacity of Australian suppliers if they want to boost the level of local content on their projects.
Johnson, who was appointed to this position in August of last year, said there was much good work happening in the sector to raise the capability of Australian firms to win work, but more could be done by both developers and suppliers.
"Project developers should take into account the limitations faced by Australian suppliers in undertaking large procurement packages, accessing the necessary finance and obtaining sufficient numbers of skilled workers," Johnson said.
"Small adjustments to the way projects are designed, engineered and procured can make a big difference to local suppliers.
"Early consideration of what can be done here should inform the design and engineering approach and basing some of the procurement team in Australia will lead to better engagement with local suppliers."
While major developers have been questioned for the amount of local content on their projects, Chevron reinforced its commitment to local suppliers through its conference presentation.
Colin Beckett, Chevron's general manager at the Gorgon LNG development, explained that the project had so far awarded $18.7 billion (AUD $18 billion) in contracts to local suppliers and created 9.000 jobs in the country.
However, he conceded that many Australian companies had not met the pre-conditions for tendering for work, with reasons including a lack of experience or capacity.
To assist in preparing local firms to win work, Australia's Department of Industry, Innovation, Science, Research and Tertiary Education last year engaged economic advisory firm, Development Impacts, to undertake a project examining best practices by companies successfully supplying into the sector to determine how they meet the needs of project proponents.
Pia Turcinov, Development Impacts director, explained to Rigzone that it found there was more to the issue than obstacles such as a high Australian dollar, a lack of financial profile and Australia's skills shortage.
"They are huge hurdles for Australian companies, but there are other issues surrounding what the benchmarks are that local companies need to meet before they are considered… even in the tender stage," Turcinov, who also addressed the conference, said.
"Our work on this project identified 22 key factors companies need to focus on.
"Yes, price was a major factor, but other key factors were about quality, flexibility, design capabilities, QA systems, technical expertise, after sale service, and financial capabilities and risk profile.
"We looked at factors such as these and how the better performing companies compare and where they are outperforming against expectations."
Turcinov explained that suppliers needed to establish a clear capability beyond just a normal website and marketing brochure, and it was advisable for them to look at forming alliances with other local companies to build profile and capability.
In an election year, both at a federal and state level in WA, political parties in Australia have been prioritizing this issue.
WA's governing Liberal Party regularly produces an industry participation framework aimed at ensuring the local industry receives opportunity to participate in major resource projects.
The opposing Labor Party in WA has also shown its commitment by releasing a discussion paper outlining its openness to the issue.
At a federal level, the governing Labor Party is focusing on strengthening opportunities for the local industry through a proposed plan administering the issue.
Under the plan, major projects worth $519 million (AUD $500) million or more will be required to have an Australian industry participation plan identifying opportunities for local firms.
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