Michigan comes to Australia: Chevron MD draws stark comparison on LNG wages

The state of Western Australia is almost half the size of Russia but home to only 2.5 million people, almost 2 million of whom live in and around the state capital of Perth.

The pleasant city has grown rapidly on the back of Australia’s resources boom. The region’s fast-growing mining, oil and gas industries have seen sleek new office towers rise above the city’s older Victorian heritage buildings, staffed by neatly attired office workers pacing purposefully to well paid jobs, A$4 ($3.76) ‘flat white’ coffees in hand.

So it was a resource industry-friendly city in which to hold the Australian Petroleum Production and Exploration Association’s annual conference and trade show, which ran April 6-9 and attracted a record-breaking 3,600 delegates, making it – according to the organizers – the biggest oil industry conference in the southern hemisphere.

There was, however, one notable protest during the conference: a stunt pulled by members of the Maritime Union of Australia who buried a huge papier mache statue of Chevron Australia Managing Director Roy Krzywosinski head first in a pile of sand in front of the huge conference center. Two placards read simply “Chevron” and “Gorgon.”

The unions claimed Chevron wasn’t listening to them. But the plain-speaking Chevron MD, who oversees the company’s massive, and over-budget Gorgon and Wheatstone LNG projects in Western Australia, told conference delegates that Gorgon had been subject to almost 1,000 “disruptive right of entry claims,” by unions since 2009.

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The rights of entry provisions of Australia’s Fair Work Act 2009 allow union officials to enter workplaces to hold talks with employees, and investigate suspected contraventions of the Act or health and safety matters.

“That same imbalance in the employer-employee relationship also explains how unions have leveraged significant and unsustainable wages and conditions hikes over recent years,” Krzywosinski said. “It’s also borne witness to a ‘ratcheting’ effect where the end point of one project labor agreement or ‘greenfield’ agreement becomes the starting point for the next.”

Krzywosinski quoted from a recent APPEA report that showed a barge welder typically earned A$400,000 ($376,260) per year, with staff such as laundry hands earning A$350,000. “This represents a doubling over the past six years,” he said. “This wage growth is currently crippling Australian industry and is simply not sustainable.”

The 15.6 million mt/year Gorgon project on Barrow Island off northern Western Australia has seen its budget blow out to $54 billion now and is due to deliver its first cargo in mid-2015.

Krzywosinski , a Michigan native, drew comparisons with the bad old days of the auto industry in his home state, where the unions’ spiraling wage demands in the 1970s and ’80s saw much US car production move overseas.

“I witnessed the scenario play out first hand. My father worked on the shop floor of a car factory,” Krzywosinski said. “My dad was also a union representative. albeit a ‘rational’ one,” said Krzywosinski, suggesting to many in the audience that he thought the Australian unions were not.

Any future expansion of Gorgon, which could see a fourth production train added to the three now being built, depended on costs being held in check, Krzywosinski said.

Speaking on the sidelines of the conference the following day, Australia’s equally plain-speaking industry minister Ian Macfarlane said some of the wages being paid on big energy projects in Australia were “eye-opening,” but of more concern to him were extra payments for alleged hardships, such as having to share a common living area in worker accommodations, which reportedly nets some workers an extra A$40,000 a year.

Macfarlane, who is a member of the Liberal Party and a true laissez faire politician, reasoned that the market would sort out these imbalances, with more floating LNG projects putting an end to costly greenfield land-based energy projects such Gorgon. Shell is currently constructing in South Korea what will be Australia’s first floating LNG production vessel, to be deployed at the Prelude field off north Western Australia.

“As these [LNG] boats come down from Korea and park themselves off our shores there’s all those jobs that could have been but won’t be because [of] union demands, particularly on conditions, that are just not comparable to anywhere else in the world. I guess that’s what happens when [wage] claims get out of kilter, they can extract a rent for projects that are already committed. Two years ago I said I thought there wouldn’t be another greenfield [development] in Australia for LNG, I’m starting to wonder if there will be a brownfield [project] in the next decade,” Macfarlane said.

“In the end you’re better off having a [permanent] job than earning a fortune for six months or 12 months,” said the former Queensland cattle farmer, whose industry portfolio includes energy.

Although unwilling to intervene in the markets, Australia’s right-of-center government has however re-established a federal commission to look into trade union practices. The revived body, disbanded by the country’s former Labor government, will investigate the often murky world of Australian trades union finances and governance.

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