Labour costs twice that of the US, says KBR boss
The KBR chairman and chief executive, William Utt, said the future of large Australian energy projects in particular, such as Woodside Petroleum's $40 billion-plus Browse liquefied natural gas project and Gorgon, would rest heavily on these ballooning labour costs with Australia now at a point of "reset".
"In terms of what we see changed in the last six months, I think we've seen a recognition across the space in Australia that the cost to build an LNG project has gotten very expensive," Mr Utt told analysts during KBR's earnings update last week. "And I think Australia is at a point of reset."
Last year, Mr Utt warned US investors of a "very high cost situation in Australia" when it came to liquefied natural gas projects and, although Australia was blessed with natural resources, it also faced a number of cost disadvantages that made other regions, such as East Africa, more attractive to do business in.
Last week, he pushed home that argument, saying Australian workers cost double that of their US peers.
"As we look at the US market, we can get craft labour all in at about $US50 [$48.46] an hour nominally, and that includes the burdens and benefits. And if you look at Australia, that cost is about $US108 an hour.
"So it's more than double what we're seeing for labour. And then when you factor an 85 per cent productivity inefficiency in Australia, the cost of building things gets very, very expensive very quickly relative to the US and relative to other areas."
KBR has roughly 27,000 employees in over 70 countries working across five continents. One of the world's largest engineering, procurement and construction companies, its directors include former Telstra chief Frank Blount.
The company has been involved in the north-west shelf project Gorgon and is seeking to work on Browse, along with further work on the $14.9 billion Pluto project.
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KBR chairman and CEO William Utt warned that the cost of employing a worker in Australia is roughly double that of the US, and he said this ballooning labour cost could make building large projects—especially LNG projects—very expensive. For investors, that highlights higher project costs and potential delays or shifts in where energy companies choose to build.
KBR cited craft labour 'all in' costs at about US$50 an hour in the US (roughly US$48.46) versus about US$108 an hour in Australia—more than double according to William Utt's comments during KBR's earnings update.
KBR said that when you factor in an 85% productivity inefficiency in Australia, the cost of building projects becomes 'very, very expensive very quickly' compared with the US and other regions. That combination of higher wages and lower productivity can sharply increase total project budgets.
The article specifically mentions Woodside Petroleum's Browse project (noted as a $40 billion-plus project) and the Gorgon project as large Australian energy developments whose futures could be heavily affected by rising labour and construction costs.
According to KBR's comments, while Australia is rich in natural resources it faces cost disadvantages—particularly high labour costs and productivity issues—making other regions such as East Africa relatively more attractive for building LNG projects.
KBR is one of the world's largest engineering, procurement and construction (EPC) companies with roughly 27,000 employees in over 70 countries across five continents. The company has been involved in projects such as the north-west shelf Gorgon and is seeking work on Browse, as well as further work on the $14.9 billion Pluto project.
KBR's remarks flag higher construction costs and a potential 'reset' in Australia, which could influence how investors and energy companies assess the feasibility and budgets of new projects. While the article doesn't provide market reaction data, such cost concerns can factor into investment decisions and project timelines.
William Utt is the chairman and chief executive of KBR and made the comments about labour costs. The article also notes that KBR's directors include former Telstra chief Frank Blount.
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