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Interview

with Mark Bumpstead, Minister of State, Nacap Australia

07.03.2011 / Energyboardroom

Security of energy supply is a major priority in Australia given the extreme distances to connect energy to markets. What is the industrial weight and reputation that Nacap brings to Australia to link energy to its destination?

Nacap established a presence in Australia in 2000 when we acquired a shareholding in a small general civil engineering company called Minson Constructions. At the time it accounted for a very small part of the total Nacap business. When we acquired the balance of Minson’s shareholding in 2002 we were officially renamed Nacap Australia and became a pipeline specialist contractor in this country. Today the Australian region represents 30% of Nacap’s turnover worldwide and is a significant contributor to Nacap’s global success.

We are a pipeline construction company as well as horizontal directional drilling (HDD) specialists with a niche position in landfalls. Most of our work in Australia, however, has been in pipeline construction.

As a multinational company with operations cutting across several continents, how are you able to leverage the synergies of Nacap’s global network?

We do that in several of ways. Being a global construction company we are able to draw on the worldwide resources of the group. If there is a downturn in Europe or the Middle East, then we are able to utilize those resources in an area that is going through an upturn, be they human resources or plant and equipment resources.

Certainly some of the challenges facing the Australian market center on human resources. We are able to offset that to some extent by bringing people in from affiliate companies.

Conversely, what is the specific innovation that is bred “down under” which is unique to Australia but whose learnings can be exported to Nacap elsewhere in the world?

Australia is somewhat unique in the global pipeline market. Contrary to most other markets in which Nacap operate, our pipelines here are characterized by long distances since energy sources are far from population centers. The pipelines here have thin wall thicknesses and are comparatively smaller in diameter – less than 30 inches – compared to the big inch pipelines in the US, Canada, Europe, and Russia. They are built at much faster rates of construction here than elsewhere. We often see rates of progress of in excess of five kilometers per day, which is unheard of in other jurisdictions.

The consequence of that is that it has been necessary for the Australian pipeline industry to develop a set of standards for the type of construction that happens here and which is required to suit local conditions. Those standards are supported by a pool of research that is funded by the industry. The Australian Pipeline Industry Association’s (APIA) pipeline Research and Standards Committee develops, funds, and directs a Co-operative Research Council (CRC) for Energy Pipelines. It is a body of industry pipeline owners, contractors and universities who undertake research that is peculiar to the conditions here in Australia on subjects such as welding, coating, corrosion, and third party interference.

Would you say that Australia categorically elevates Nacap’s standards?

Nacap worldwide has benefitted very much from its presence here. A lot of the systems, procedures, and risk management practices that we have developed for “business as usual” in Australia have been taken to Nacap globally. Many of the management systems and processes in particular are reflected elsewhere although construction methodologies are very different. We know that the UK and Europe have very stylized forms of pipeline construction with big inch pipelines and much slower rates of progress. The types of techniques that we use are not directly adaptable to other jurisdictions.

To what extent has Nacap contributed to the growth and development of the pipeline industry here in Australia?

We are a lead member of the Australian Pipeline Industry Association and one of only three contractor members of the Pipeline Research and Standards Committee. We participate in providing financial and in-kind support as well as investing some of our peoples’ time to ensure that the research conducted by the CRC is relevant and has practical benefits to the industry here. Our contribution indeed is to supply the practical, experienced people to guide research.

I imagine that the plethora of new gas projects coming online over the next several years and the networks of infrastructure necessary to connect them to markets will place a lot of stress, demands, and challenges on the pipeline industry to keep pace with all the activity. However, in our discussion with APIA we were told the opposite – that the biggest test is to prove that keeping pace is not a challenge given the delays in field development planning and the speed in constructing pipelines. What is your assessment of the amount of forward planning required for the industry?

The greatest challenge for us is to gear up to provide the resources to construct the pipelines that are coal seam gas (CSG) related. In this market we compete not just for CSG, but also with the mining industry that draws on the same labor pool. When considering not just the trunk lines, but the upstream gathering facilities, there are many thousands of kilometers of pipelines to be built to support these CSG projects. It is certainly a challenge to provide skilled and experienced labor, largely due to the fact our long term workforces have aged very significantly in Australia. Much of our workforce is approaching retirement age which in some way is indicative of the great industry that we do have; people enter the industry and do not want to leave.

To get young people in is indeed a challenge. Young people may not want to join an industry where the norm is to work 28 days on/nine days off; 10-12 hours per day; and live in a construction camp in the desert. The challenge for us is to make that type of life attractive for young people.

So what is the pitch for the pipeline industry in general and Nacap in specific?

The pitch for Nacap is that we work very hard to reward our people well and make sure that the remuneration matches the sacrifice. We work to make sure that our people get the high level of personal satisfaction for the work that they achieve and to make sure that they have some fun along the way.

Notwithstanding what I said, the places where we work are pretty special. These are parts of the world where you would never have the opportunity to see otherwise. It is an opportunity to travel. For Nacap employees it is an opportunity for these people to see not just Australia, but the Middle East, Southeast Asia and Europe as well.

This industry requires a certain type of person. It is interesting for us to be currently constructing two world class projects which are at the opposite end of the spectrum. At one end we have the QSN3 project being constructed fro Epic. It is a 950km gas pipeline which runs across the bottom of Queensland into the desert country of South Australia. It is being built at rates of installation that exceed 5 kilometres per day and on a roster that calls for 28 days on/nine days off.

Our other concurrent project is here in Victoria where we are building the transfer pipeline for the Victorian desalinization plant. It is a large diameter, slow moving spread being constructed through the urban fringe and some of the most productive small rural landholdings in Australia. It is a six day per week project in the outskirts of metropolitan Melbourne. Interestingly, many of our people prefer to work in the desert. Invariably, the people who build pipelines in this country live remotely from the pipeline sites. If you are going to work on-site many prefer to work 28 days and have nine days off to enjoy and travel home as opposed to six days in Melbourne with one day off and a minimal chance to go home.

What is driving the rapid pace of QSN3’s development? Is it strict deadlines from the operator? Nacap’s rigorous internal standards? Both?

It is both. We have a very tight schedule for the project which requires it to be completed by the end of this year. We are on track to meet that target. The project was very much affected by the rain and flooding in Queensland at the end of last year which impacted our rate of progress. Prior to Christmas we were forced to shut down the site and demobilize equipment. Work resumed in February 2011 and progress since that resumption has been very good.

We have three camps in place with a workforce of close to 450 people. The job is currently progressing at a rate of 4 ½ – 5 km per day, which if you think about it, is a long way to even walk each day much less construct a pipeline.

The rapid pace is all the more remarkable given the strict environmental codes and regulations specific to Australia. Is it accurate to assess that because of such codes projects here take longer to deliver than elsewhere in the world?

Very accurate. In most cases, the planning phase is much longer than the actual construction phase. The CSG projects in Queensland have been in planning for 2-3 years but will be built in 1 ½ years. Similarly, our QSN3 project has been in planning for three years but will be built in 1 ½ years. The environmental and cultural heritage issues are not put to bed once an approval has been granted. There is a tremendous amount of diligence that goes on during the construction phase that to ensure that we deliver on the commitments made during the planning and approvals phases. The management effort and processes to deliver on these commitments should not be under estimated – they are considerable.

The growth of the CSG industry in Queensland and the network of infrastructure to link gas fields to power plants and LNG terminals must really whet the appetite of a pipeline contractor. How does Nacap intend to capitalize on the growth of this sector?

There are multiple opportunities for pipeline constructors in Queensland. Nacap bid on several export pipelines last year but unfortunately were not awarded those contracts. That said, the upstream opportunities there remain very significant with thousands of kilometers of gas gathering systems to connect wells to compressor stations and wastewater to pump stations. To date, wastewater treatment has not yet found an effective solution; almost invariably that solution will involve pipelines to transport wastewater away from the field. We intend to be part of that industry.

What in your services do you still need to strengthen and develop so that you can win those big upstream contracts the next time around?

Nacap has been successful in Australia by focusing very aggressively on risk management. We are very conscious that the rewards need to match the risks. If the balance is too far in either direction then it is not an opportunity for us. We pursued each of those projects aggressively in conjunction with a North American partner to the point where we believe we tendered a cost that was commensurate with the amount of risk that we were to accept. It subsequently transpired that the risk allocation was changing and there were some risks that we were less willing to take.

How do you envision the interconnectivity of the transmission infrastructure manifesting when CSG really opens up in about 5-7 years?

While the initial target for CSG producers is the export market, the QSN3 pipeline that we are currently constructing provides an opportunity for domestic gas to be shipped from those CSG fields into Moomba; then from Moomba into Sydney and Adelaide; and from Adelaide on to Melbourne. There is a very good link that exists for the start-up phase for these projects.

The QSN3 pipeline and Victoria’s desalinization plant are two projects of national significance for Australia. Nacap has set the bar very high for itself. I’m sure there are no projects that are too big for your capabilities. But are there any projects that are too small?

A common misnomer is that a business such as Nacap’s has a threshold below which we are not interested in. We have undertaken some low contract value size projects in Australia (as low as $2 million) to ones that are in excess of $500 million. We are able to do that because we are a fairly lean and tight organization that maintains a core group of experienced pipeline professionals on its permanent staff. We have people who know the market very well and who know how to get the job done. We generally compete with the largest players in the industry for the very biggest projects through joint ventures. We pursued the CSG LNG export pipeline projects in conjunction with a North American joint venture partner and are currently building the Victoria desalinization water transfer pipeline in a joint venture with Thiess and Degremont. Nacap has a very long and fruitful history with Thiess in particular having built some many successful projects together with them.

Yes we can execute large projects on our own right such as QSN3 however when projects get very large we like to share the risk with others. At the low end of the market we are highly competitive with any other players.

I sense a lot of ease and confidence in Nacap’s ability to execute physical infrastructure. Is the most pressing problem on your plate therefore the human resource constraints?

It has been quite a challenge and we have addressed those issues through carefully managed expansion. We set the business some time ago to grow here in Australia. Our levels of revenue have tripled in recent years. We achieved this by securing the right people in the years leading up to our expansion. We bring in many people from elsewhere in the group. We have Dutch, Malaysians, and Filipinos, for example, joining us from business units elsewhere on the globe. We have successfully integrated our team here and they feel very much at home here in Australia.

What would be you final message to our readers about Nacap, the pipeline industry, and their place in the greater Australian energy landscape?

Australia currently is a major exporter of LNG and energy will become an even more prominent industry in the future because of CSG. Its success will depend on multiple projects getting up and running on a manageable timetable. There is no doubt that there will be huge opportunities for a pipeline constructor when thinking about the required infrastructure to support multiple LNG trains and further expansion. There is certainly enough work in this country to keep us busy for a long time.

This industry is and always has been about people. The fact that so many of our people are nearing retirement is testament to the great industry that it is. The challenge is to convince our young people to enter the industry. It has great challenges, great rewards, and great satisfaction as well.

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