Safety will be one of the biggest risks for the oil and gas industry as it actively recruits more skilled workers
In view of the major LNG capital projects planned by oil and gas projects in Queensland and Western Australia, the most prominent risks in the oil and gas industry are around safety, according to Deloitte.
Safety is always a challenging issue, and will continue to be so particularly while thousands of new employees join the industry, said Stephen Reid, the national leader of Deloitte’s oil and gas industry sector.
“Project proponents can’t afford to outsource their safety obligations along with parts of the project. High safety standards will need to be maintained throughout the supply chain,” he said.
The major LNG capital projects are $15 billion plus complex developments with multiple stakeholders, many of which are proposed to be developed simultaneously, said Reid. “Australian industry will be challenged to deliver into these projects as they battle, commodity and wage inflation and talent shortages of their own. Risks that are not sufficiently well managed could translate into costly delays to project timelines and reductions in project returns,” he said.
While the major oil and gas companies are very well resourced, these major capital projects present special challenges, and few companies proposing LNG projects in Australia have actually completed projects of similar size or complexity in Australia to date.
Only Woodside and Conoco Phillips have operating LNG projects, noted Reid, who added that Chevron is currently developing the Gorgon Project. “Most companies don’t have an entrenched Australian workforce with experience to deliver these projects. The project proponents can and are taking action to manage these prominent risks,” he said.
Inherent challenges in managing these prominent risks include a limited labour pool in Australia, and in particular, skilled, experienced employees. “Project proponents need to recruit and retain employees, educate and train those employees and execute sophisticated workforce planning in an environment of low unemployment and rising salary costs,” said Reid who gave the example of welders in WA currently earning $350,000 per annum for a 30 week year.
Volatile commodity and currency markets will challenge companies’ ability to manage capital costs, and Reid said proper management of these prominent risks will go a long way towards ensuring a successful project.
“Management professionals in these companies need to ensure that the solutions they have to these challenges are world class solutions,” he said.
“Innovative and creative solutions will be required to obtain sufficient skilled workers – the way these projects have traditionally been managed may need to be revisited: technology solutions, remote workers and flexible work arrangements.”
The impact of the Gulf of Mexico oil spill
The oil spill in the Gulf of Mexico has created a new paradigm regarding the price of risk, according to a recent Deloitte report. The liability associated with that spill, which will likely exceed US$35 billion ($33 billion), far surpasses previous industry assumptions regarding what a “worst case scenario” would cost.
Accordingly, the report said oil and gas producers around the globe are now reexamining their safety policies in an effort to ensure sustainable operations. “This often involves identifying and quantifying environmental, health and safety (EH&S) risks according to the new cost paradigm as well as implementing effective methods for managing and controlling these risks. Also, it frequently entails establishing ultimate accountability and clear roles and responsibilities for implementing EH&S policies and procedures,” said the report, Oil and Gas reality check 2011.
The issue of accountability is also cascading through the extended value chain, with the Gulf spill and other recent mishaps also forcing insurance companies to redefine risk and worst-case scenarios as well as who is ultimately held responsible – the rig operator, the owner, or those who work on blowout preventers.