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The LNG people problem

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LNG Industry,

The past five to seven years have borne witness to an unprecedented level of LNG project investment across the Australasian region. Centered on Australia and Papua New Guinea, the market is seeing upwards of AUS$ 200 billion in capital expenditure on LNG projects spanning between 2006 and 2016. Yet the long-term future remains in the balance - the first wave of projects has been far from pain-free. Cost overruns, labour issues, and fierce competition for resources have triggered numerous project delays and even cancellations. Australia has a relatively small population, and despite a great deal of mining expertise it has little experience in oil and gas and much less in LNG in particular. There are concerns that workforce costs and continued shortages will inevitably cause a re-run of similar problems, casting an unhealthy doubt over when projects will get built and come online, and just how much investors can expect from the market.

What the industry needs is a robust and systematic appraisal of people-related risks that takes into account the particularities of the sector. The oil and gas industry has typically been very proficient at quantifying and managing technical risk, using risk managers and registers. People risk mitigation, however – while far from a new way of looking at manpower or people services –  is an area that is yet to be addressed with the appropriate level of rigour.

The need for such an analysis is profound: the majority of issues encountered in the course of LNG projects are people-related at their root cause, and the industry’s relatively atypical project-based structure creates unique challenges, the solutions to which cannot simply be copied and pasted from other sectors. The acute skills shortage is a primary example, with the domestic lack of talent causing companies to struggle to find the right people overseas, and mobilise them quickly and compliantly – in some cases it can take three to four months to fill any given role. In a project-based environment such difficulties can have major impacts on schedules, which can in turn quickly drive up costs. Often, the only way to avoid multibillion dollar penalties will be to increase spending on labour. As a consequence, the project-cycle to date has seen a huge people-related cost overspend. The financial implications affect not only the operating company, but also contractors and sub-contractors through the supply chain.

Reducing risk

It is for this reason that Air Energi Group (global workforce solutions provider for the oil and gas industry) is partnering with Australia’s Queensland University of Technology to develop a comprehensive method of reducing people risk as it relates to projects involving a contingent workforce. The research project will be undertaken in six stages, with an initial ‘lessons learned’ report scheduled for publication in early 2014. 

The research will involve identifying different risks connected with a contingent workforce during the exploration, execution and demobilisation phases of a major project. These risks can broadly be categorised into five core areas: talent attraction (e.g. critical roles, project/role requirements, skills shortage, project attractiveness), onboarding and induction (e.g. cultural alignment, lost time/productivity, induction processes), talent retention (e.g. poaching, knowledge management, engagement), demobilisation (e.g. succession planning, reputation management, critical role and knowledge retention), and compliance (e.g. health and safety requirements, drug and alcohol tests, issues surrounding work visas, enforcing organisational policies).

The expectation is that mapping these risk areas to organisations, supply chains, and project stages will enable the development of solutions for better managing people risk in general. Drawing on its extensive experience in Australia’s – and indeed the global – energy market, Air Energi Group believes that the solution to mitigating people risk is likely to be found in better integrating talent and mobility. In large organisations undertaking this sort of project work, HR typically sits separately to talent acquisition, and both in turn sit separately to the global mobility and compliance function. Too often when a project goes wrong due to a personnel issue it can be traced back to the overly silo-ed nature of these functions, with a lack of communication between them leading to issues falling between the gaps.

Successfully improving the industry’s approach to these risks will not just be critical to the future development of projects within Australasia, but will also be of significant benefit to the global LNG industry as a whole. It is Air Energi Group's hope that lessons learned from Australia’s experience will be utilised by firms looking to benefit from booming LNG markets in North America, East Africa and Russia. With demand for LNG expected to increase by 50% by 2025 – thanks to improving extraction technologies, reduced transport costs, and a relative lack of natural gas reserves in emergent Asian economies – this would be no small feat.

Written by Air Energi Group

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