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Australian EPC: After the Party?

Attracted in by Australia’s unprecedented pipeline of supersize LNG projects over the last decade and the country’s stable governance, most of the major multinational engineering, procurement and construction (EPC) players have long considered it worth their while to establish a strong footprint Down Under to fulfill the enormous construction needs that the Australian LNG revolution generated.

That’s not, of course to imply that the Australian market has not posed its own unique challenges requiring distinctive workaround solutions. “The primary hurdle has always been the comparatively high costs associated with Australia’s operating landscape,” recalls Peter Bennett, the recently appointed CEO of Perth-based Clough, while noting that the prevailing low oil and gas prices currently hampering the industry only serve to further exacerbate this impediment. When grappling with this sort of external environment, it thus “makes a lot of sense to orientate towards solution-based rather than process-based services which entails listening intently to the real needs of your customers, and being bold enough to consider fresh, novel, outside-the-box responses that may provide for more efficient and productive outcomes,“ counselsScott Cummins, CEO of Melbourne-based McConnell Dowell.

Some Australian LNG projects straddling ‘Class-A nature reserves’ have also presented an additional layer of technical and regulatory challenges for the engineering companies servicing these mega-projects. “Environmental considerations and requirements on Chevron’s Gorgon project were probably among the highest and most stringent ever implemented on any project of this type,” expounds Brian Kelly, regional leader Asia Pacific at SNC Lavalin. Nevertheless, most EPC actors agree that Australia still possesses the right foundations to remain attractive over the long run – with the slight twist being that now much of the major infrastructural apparatus has already been completed. “Will we ever see a reoccurrence of those fabulously heady investment levels witnessed over the past decade? I doubt it in the foreseeable future,” muses Bennett.

The pending completion of all major LNG construction projects indeed forces locally implanted EPC players to adapt their strategies to a ‘new normal,’ where fresh projects will continue to arise, but most certainly in a smaller and scarcer fashion than during the ‘big boom’ period of mega-constructions experienced over the last decade. The “gold-rush of yesteryear, has now past” as one commentator bluntly puts it. Many of the main EPC players will now be looking to leverage through operations and maintenance (O&M) contracts the experience they accumulated during the assembly phase. “As the capital-intensive build side of things inevitably enters slow down, we’ll be focusing our efforts on redeploying our resources elsewhere…right now, we are witnessing a decisive shift in demand from construction, installation and commissioning to O&M projects so are naturally seeking to bolster our capabilities in areas such as assisting clients to mitigate and avoid shutdowns,” reasons Mitchell Buswell, Regional Manager of Brunel, which delivers specialist manpower to EPC operations.

“We’ve also been anticipating the end of the boom for some time,” agrees Eric Jas, managing director of engineering consultancy, Atteris. “The scope of our work has gradually shifted from primarily servicing mega greenfield projects, where we designed new-for-new infrastructure, to engineering support for existing infrastructure and also to smaller brownfield sites,” he recalls. “Businesses that came strictly for the boom shall either wind up, or exit the country, leaving behind the better, more competent, wiser professionals that can service the hydrocarbons sector more specifically by targeting asset integrity management and smaller tieback projects,” he calculates.

When it comes to fully capitalizing on Australia-bred expertise to benefit from new opportunities, many players are now squarely swiveling their gaze abroad. Following the money, even the local, homegrown EPC players are now ramping up their overseas footprints. “Our next growth markets will be found internationally… some aspects of our strategy will consist of organic growth and deploying resources from Australia to the US, while Africa represents another fast emerging strategic market where we forecast a lot of potential,” explains Clough’s Peter Bennett. “We firmly believe our successful [Australian] track-record will significantly increase the likelihood of being involved in other major LNG developments across the Asia-Pacific region, while this expertise can now also be appropriately mobilized across other geographies displaying similar challenges such as Canada or West-Africa,” attests Kelly.

As the golden age of big-ticket Australian infrastructure construction enters the twilight zone, giving rise to the new phase of O&M opportunities the modus operandi of EPC companies is also undergoing profound transformation. “One of the key components of this new era will be renewed attention to collaboration. We’re talking about the smooth operation of highly complex, multifaceted, big money projects. The industry simply cannot afford anymore to have the sorts of high-profile and immensely costly blowouts that we have sometimes witnessed the past,” analyses Cummings. More than ever, EPC players are being called upon to provide an increased level of certainty to their clients, which can only be attained through a genuine pooling of minds and resources. This new industry paradigm indeed implies that entities seeking to hoover up the next batch of contracts will have to show themselves adept at assuming a completely new array of responsibilities. “We are presently very focused on increasing our presence and our connectivity at the front-end of our business with all our customers… The sooner that we can apply the knowledge from our innovation, as well as fresh ingenuity from increased collaboration into a project development scenario, the greater the impact we can potentially make,” concludes Cummins.

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