The LNG industry has warned $150 billion dollars worth of investment in Australia could be lost if the high cost of building major projects is not fixed within eighteen months.
The industry said tens of thousands of jobs could be lost along with billions in potential revenue if the LNG industry did not become more competitive.
The world’s biggest energy companies gathered in Brisbane on Sunday for the industry’s annual conference, where the theme centred around the need for better policies to ensure the industry in Australia did not collapse.
Chevron Australia's managing director Roy Krzywosinski said the country needs a stable Federal tax regime, a lift in productivity and a review of IR laws to get another wave of LNG projects, West Australian reported.
"While the industry, partners and governments have together delivered more than $160 billion in committed LNG investment in Australia, another $100 billion- plus in projects hangs in the balance," he said.
"Governments and industry must make changes now to capture this second wave of investment.
"There is an 18 to 24-month window in which to do so and it will require a significant structural change in Australia's costs."
One leader involved in the sectors said the entire industry was "probably at breaking point".
One of the biggest concerns was unions driving up pay rates.
Three unions negotiating with 18 companies in the maritime sector are demanding a 26 per cent pay rise over four years, a lift in the "construction allowance" to $245 a day and a four-week on/four-week off roster with no change to workplace practices.
The industry estimates the Australian workforces building LNG projects are 30 to 50 per cent less productive than comparable workers in the US.
They say this leads to inflated costs.
Last year Chevron reported a cost blowout of $9 billion at it’s Gorgon Project, taking development costs to $52 billion.
While earlier this year Woodside scrapped its $45 billion planned development at James Price Point in favour of floating using a floating LNG plant.
Other projects hanging in the balance include Shell and PetroChina’s Arrow project in Queensland and BHP Exxonmobil’s Scarborough floating plant.
Incoming Shell Australia country chair Andrew Smith said the nation's leaders had to get serious about ensuring a long run of projects and recognise the current state of play around industrial relations could not continue.
"Australia needs to urgently improve its productivity and come back to a more sustainable footing," he said.
"This is about comparing one developed nation with others as investment destinations."
It is estimated that the LNG boom in Australia will lift Australia from the fourth largest LNG producer to the first, knocking Qatar off its perch.
In Queensland alone three projects currently under construction are expected to generate $45 billion in capital expenditure and produce 28.8 Mtpa of LNG, with the first project expected to export its first shipment late next year.
However industry insiders say that without important policy changes, Australia will lose market share to competitors like the U.S.A.
“We remain optimistic about the Australian investment environment but it requires significant national leadership to improve our international competitiveness including fiscal stability, increased productivity and industrial relations changes that focus on Australia’s long term interests,” Krzywosinski said.
A recent report has shown that a dramatic fall is expected in the value of projects that are already in the pipeline or have commenced.
It is predicted to fall to $70 billion by the end of 2017 while a fall to $256 billion by the end of the year is expected, the Bureau of Resources and Energy Economics report said.
Minerals Council of Australia chief Mitch Hooke said rising costs, decreasing productivity. and more regulation and taxes were punishing the industry
Last year Hooke warned that Australia’s cash costs were 30 per cent more than the global average, warning this could impact on future projects.
While at a recent industry conference professor Henry Ergas from the University of Wollongong also highlighted the effect escalating costs were having on the industry.
“If we continue to face rapid cost escalation then we could rapidly lose market share and even lose volume,” he said.
“We’ve had the period where the world was happy to pay us much more for what we did but as prices start to come off and as the rest of the world find alternative sources, it is clear we have to do more.”
Outgoing Shell country chief Anna Pickard said something needed to be done quickly to address Australia’s high-cost environment.
“The window for LNG plants is open for about 18 months,” she said.