with Leo Zussino, Chief Executive Officer, Gladstone Ports Corporation
In 5-7 years the LNG activity on Curtis Island just across the bay from where we sit now will revolutionize both Queensland and all of Australia. Before we look ahead, it will serve us well to look a bit into the past. From a historical perspective, what has the Port of Gladstone come to signify for this region and the state of Queensland?
This is obviously the main piece of port infrastructure for central Queensland and Gladstone itself has been designated to grow into Queensland’s main industrial center. We have 28,000 hectares of state development area to the northwest of the city linking into the western basin of the port which the LNG industry is a part of.
Over the past 30 years we have been planning a 21st century industrial city with a high quality of life. We are planning all of the new port facilities and all of the new industrial facilities to the northwest of the city while urban growth continues to the west and south.
Our major export is coal; central Queensland’s coal industry will continue to develop strongly. Central Queensland controls approximately 55% of the world traded market in metallurgical coal and last year exported 200 million tons of coal; that figure is expected to increase by at least 150 million tons over the next decade. Our own coal trade in the port is around 60 million tons per year but will well exceed 120 million tons by the end of the decade. In a sense, we may become the “carbon” capital of Australia with our coal exports, gas exports, and huge deposits of shale oil in the harbor. Potentially at some stage in the future the shale oil industry will develop and Gladstone will export oil in additional to coal and gas.
The Gladstone Ports Corporation’s current 50 year strategic plan which maps out infrastructure expansions and upgrades first took shape in 1992. What was the vision established back then and how have targets and time tables evolved over time?
Looking back on it, the outcome of the plan perhaps suggests that were not optimistic enough at the start. Things have been happening faster than originally anticipated! When we did our first 50 year plan we saw the harbor growing to a maximum capacity of 160 million tons per annum. Obviously now we see it growing to over 300 million tons and by 2020 we will have exceeded our initial harbor forecast. By continually reviewing the plan every few years we have been able to better plan the harbor to find additional locations for infrastructure and expand the ultimate capacity of the port. The continual planning process has been a tremendous benefit.
Coal is the core commodity that this port services. Then, in a relative sense, along came a new resource in the form of LNG whose development will change the industrial landscape of Gladstone and Queensland. How have you had to adapt your planning? Does it stretch resources thin having to meet continuous high volumes of coal while adjusting for the boom in LNG?
We have two sides to the port: coal and industrial resource processing whose main component since the 1960s has been the aluminium industry. We currently have 60 million tons of coal exports and 25 million tons of industrial products – aluminium products, cement and chemicals – which collectively form the basis of the port’s industrial development.
We had always anticipated a shale oil industry but never an export industry for gas, despite the development of coal seam methane (CSM) deposits. Instead, we saw gas as a feeder into the industry for Gladstone as opposed to an export commodity. However that changed when the Queensland government set a 15% gas requirement for electricity generation approximately 10 years ago thus stimulating the development and exploration of CSM.
To what extent is the LNG industry driving the development and expansion of the Port of Gladstone?
At the moment LNG is the major driver of port development. Obviously the sizes of these projects are immense.
The LNG precinct on Curtis Island will see 25-40 million tons per annum of LNG export over the next 10-15 years. That development will continue assuming the sustainability of the economic extraction of CSM. If that remains strong, then everything else regarding the construction of pipelines to Gladstone and installation of process plants are relatively simple in terms of the relationship of those issues. In Gladstone we are about to commence a major dredging project for the LNG industry. We have been putting in a lot of logistics infrastructure for the industry. All of the people and materials are being transported by barges to Curtis Island. LNG is very much driving the infrastructure of the port at the moment.
The LNG industry got a major push with the recent final investment decisions (FID) of two major projects – Queensland Curtis LNG and Gladstone LNG. FID for two more major projects are still waiting. How big of an injection were those FIDs for Gladstone Port Corporation’s planning process? Do you have enough finality to move forward?
We were due to update our 50 year strategic plan last year and obviously we waited to see what would happen with the LNG industry since it plays a significant role. Now 17.5 million tons of LNG production have passed FID. Asia-Pacific LNG should have federal government approval in the next month. If that goes ahead then we are talking 25 million tons of export for one industry. It is very exciting for us to have that new industry established in Gladstone.
Gladstone Ports Corporation plans on expanding its workforce from its current 700 to over 1,000 by 2015 in order to meet necessary infrastructure demands. Human resources are already a major shortage for the industry and you will probably compete for skilled labor with the same LNG projects that will utilize the port. How daunting of a challenge do you foresee this to be?
We have always been the employer of choice in Gladstone with people typically liking to work for us. Labor demands will become an issue in terms of engineering resources and the trades to some extent.
On the other side, there is a lot of talk about Australia’s two speed economy. Gladstone is the powerhouse of the eastern seaboard of the country in terms of development. It is then a matter of how many resources are in the other parts of the economy that are not being used that can come across to facilitate development here.
The major competition in the resources sector in terms of oil and gas is between Western Australia and CSM out east; in terms of mine production competition exists between South Australia, Queensland, and New South Wales. Shortages will occur where specific skills are required.
In terms of the LNG endowment that is about to bring immense activity to the port, Gladstone is very uniquely positioned geographically. No other port in Australia has the same proximity to major gas fields. Being a standalone prototype in Australia, what other models around the world do you look to and whose management and development you try to emulate?
We have always looked around the world at ports and how they operate. We are currently doing a major dredging project so last year I visited the Port of Rotterdam to inspect their dredging projects. I have also visited Qatar to visit their LNG precinct and examine how they structure their port facilities, all of which are very impressive I should say; they are certainly the big guys of the industry. If the extraction of the LNG continues to remain economical, then this export industry will continue to grow. When looking at who is contracting the piped gas, it is mainly Chinese driven. Demand for these resources from China is immense, as it is in India. With voracious demand, if the resources can continue to be economically extracted then LNG will grow in Gladstone. I have always believed, especially in light of the recent project FIDS, that we could grow to 25 million tons of LNG per annum and be a sizeable export precinct in the world. That can happen.
Traveling around the world to the major gas export hubs, on a comparative basis, do you think Australia is ready to fill the role as the energy hub of Asia-Pacific and potentially the world?
In terms of coal mining, Australia has been very good at developing mines and export infrastructure. There is certainly an increasing understanding that this resources boom is going to be sustained and extended beyond previous boom cycles because of the size and demand of the populations in China and India. I asked experts, especially during the early stages of foreign companies entering Australia for CSM extraction, just how economical it is to produce gas out of CSM in Gladstone; the conventional answer I get is that it is just as competitive as anywhere else in the world.
You used the term “legacy” earlier when discussing the lasting effect of the industry. What is the legacy that you want the Gladstone Ports Corporation to have?
There are very substantial royalties that flow out of the extraction of minerals and gas in Queensland which return significant benefits. The conditioning of projects today are such that there is a strong requirement on the companies to invest in social infrastructure. BG and Santos have committed hundreds of millions of dollars in social infrastructure, for example. There is also a whole skilling regime put in place for Australians who will benefit from sustainable employment and prosperity. In any region it is often very difficult to develop resources sustainably. We, however, are very fortunate to have a hinterland with copious resources which can be extracted and developed sustainably; it makes us prosperous.
Are there any final messages you would like to convey to our readers about Gladstone Ports Corporation?
I think it is wonderful that a report for Oil & Gas Financial Journal has come to talk to is in Gladstone about the future of our port.