FLNG will deliver on costs: Chaney

Woodside Petroleum chairman Michael Chaney says the use of floating liquefied natural gas technology will help the ­energy industry tackle the crisis of rising costs and inadequate productivity in Australia.

Mr Chaney told 3500 delegates at the APPEA conference in Perth yesterday that FLNG ­allowed phased capital spending and could enhance the risk profile of a project as many costs were contained within the shipyard. Cash generation was earlier and more certain, boosting investor returns and tax revenues.

Like many in the LNG sector, Mr Chaney is a recent convert to FLNG technology as a tool for cutting construction costs on projects in Australia.

Last year, Woodside abandoned plans to build a greenfields LNG plant for its Browse gas ­reserves after the estimated bill for the James Price Point site in the Kimberley came in at more than $80 billion.

The Perth-based company is now working to develop Browse using the FLNG technology being pioneered by its joint venture partner Royal Dutch Shell.

Mr Chaney said Perth could become a global centre for FLNG. “It is exactly the sort of ­opportunity we should be looking for if we are to diversify our economy away from its current dig and deliver dominance,” he said.

But Mr Chaney’s stance is not supported by West Australian Premier Colin Barnett, who told the conference the industry must work more closely with governments if it was to win a “social ­licence” to operate.

Mr Barnett believes FLNG will lead to fewer local jobs and less investment in his state during construction.

Mr Chaney repeated his call for governments to help reduce the regulatory burden on the LNG industry. He said development of Woodside’s Pluto LNG project required more than 500 separate approvals, many needing extensive investigation and reporting.

“The cost to prepare an environmental plan and supporting documents for drilling an exploration well has increased from less than $100,000 in 2011 to ­between $400,000 and $750,000 today,” he said.

Mr Chaney described changes to workplace laws introduced by the former Rudd government -- including the abolition of individual workplace agreements and greater right for unions in entering work sites -- as a “hugely retrograde step”. Amendments to the act proposed by the Abbott government did not go far enough in addressing industry concerns.

Mr Chaney said the industry welcomed the government’s proposed reinstatement of the Australian Building and Construction Commission, which had previously proved to be the only ­effective body in the battle against union lawlessness.

Inpex Corporation chief executive Toshiaki Kitamura said he agreed “to some degree” with APPEA’s assertion that unions had too much power on construction sites. But he said Inpex had not experienced any problems with union interference during construction of its $US34bn ($36.6bn) Ichthys LNG project near Darwin.

Mr Kitamura said he feared a “lose-lose” outcome in the LNG pricing battles being fought between buyers and sellers. Japanese gas buyers have ratcheted up pressure on suppliers for lower prices as part of long-term contract negotiations.

“To convert such a negative situation into a “win-win” outcome, close co-ordination between LNG suppliers and buyers is needed,” Mr Kitamura said.