As I write this month’s comment, I am keeping a close eye on one of the world’s oldest sporting contests – The Ashes. For the uninitiated reader, The Ashes is a fiercely competitive cricket competition that has been played out between England and Australia since 1882. For many years, Ashes cricket was dominated by Australia, who won eight test series in a row between 1989 and 2002-03. However, times have changed. England have emerged victorious in the last two series and are leading this current test series 2-0, with just two tests still to play.
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In England, much has been made of the recent plight of the Australian cricket team. There are two main lines of thought as to why the country is suffering such a dramatic decline in sporting fortunes. The first is that it has simply stopped producing a regular supply of world-class players (there are, of course, a multitude of reasons as to why this might be the case, which I will not go into here). The second suggestion is that this current team is underperforming, hampered by a succession of off-field controversies (rumours of in-house fighting, lawsuits from previous coaches, and the suspension of one of their better players after he inexplicably threw a punch at an English batsman in a bar prior to the start of the series).
But how is cricket related to the LNG industry, I hear you ask? Well, it could be argued that Australia’s LNG industry is facing similar challenges to its cricket team. Just as a shortage of skilled workers (read world class players, in the cricket analogy) is threatening to hinder the development of the industry down under (the future of Australian cricket), a lack of cooperation between ventures (players and coaching staff) is hampering the success of existing projects (the current cricket team).
Industry experts estimate that BG Group, Origin Energy and Santos could have saved billions of dollars by merging two of the three LNG ventures currently under construction in Queensland. Instead, we have seen a costly duplication of facilities and services, despite the fact that all three projects use the same liquefaction technology and the same contractor.
There are growing fears that spiralling development costs could hamstring Australia’s LNG industry as it attempts to capture the second wave of project development. An article from the Energy Industries Council (EIC), starting on p. 10 of this issue, outlines a number of domestic factors that have resulted in these huge cost escalations, including labour shortages, a strengthening Australian dollar and a complicated regulatory environment.
However, there are signs that the country’s main players are finally ready to start working together. Santos and BG Group recently signed the first significant bilateral agreement between the Gladstone LNG and Queensland Curtis LNG (QCLNG) projects, which will interconnect both projects’ major pipelines in two places. The collaboration will allow the companies to buy, sell and swap gas supplies, which should help to maximise productivity and slash costs.
Demand for LNG is set to remain strong and global energy companies have expressed great interest in operating in Australia, with the country securing 22% of all project finance globally in 2012. But just as the Australian cricket team must work together to rise to the challenge of emerging competitors in a sport it once dominated, the Australian LNG industry must now continue to cooperate to see off competition from North America and Africa. If it can do so, the prize is potentially enormous (much larger than The Ashes urn, which is set to remain in England for a little while longer).