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Interview

with Michael Carroll, Managing Director, Synertec

13.04.2011 / Energyboardroom

Synertec was founded in 1996 with an exclusive focus on process control and automation services for the pharmaceutical sector. Fifteen years later the company has been awarded a landmark contract for Queensland Curtis LNG (QCLNG), potentially the world’s first coal seam gas (CSG)-to-liquefied natural gas (LNG) project. What were the main factors and synergies that contributed to this diversification across industries?

The pharmaceutical industry is known for its complexities, risks, and stringent regulatory overlays. By no coincidence, all of our most successful projects have encompassed those same three elements. So it was through our work in the pharmaceutical sector that Synertec has been able to learn the disciplines, develop the systems, and harness the culture of those types of industrial environments.

Similarly, oil and gas is a complex, risky, and – especially over the past 10 years –highly regulated environment. Safety is an increasing focus in the oil and gas industry and companies continuously strive to provide the best systems in order to reduce that regulatory risk. Our analytical systems are extremely robust and transparent which the regulators very much appreciate.

We started off in the oil and gas sector with small projects in fuel storage, handling systems, and the engineering that went with it. The Australian Environmental Protection Agency was very positive about our different approach and the word about Synertec sort of grew from there. In sum, we were able to take the learnings and disciplines from the pharmaceutical sector, develop them over 10 years, break into major projects in the oil and gas area, and establish our present position in the industry.

We see also that Synertec has expanded its global footprint from its roots in Melbourne to an established presence in Southeast Asia. Was this internationalization a natural flow-on from the company’s industrial diversification? When and why did Synertec begin to look overseas?

Australia is a very small market. CSG has been on the horizon for a number of years but is now starting to truly develop. Meanwhile, the pharmaceutical industry in Australia was undergoing consolidation. We looked at where the next market was that had a vibrant investment and it took us to Singapore. Being a Westminster Legal system and a very pro-business culture, the social and legal framework in Singapore really facilitates commerce and was easy for us to transition into. We then grew across the causeway into Malaysia which is now undergoing its own huge growth phase. With its boom in life sciences, biotechnology, and the support services for major companies such as Petronas, Malaysia offers many good options for our business.

Unlike Australia where multinational companies come in and easily set up shop, Asia is a region where local content and local networks are essential. What types of partnerships are necessary for you in order to reach critical mass in Asia?

It is true that relationships and reputations are an important consideration in any successful business venture and this is especially the case in the emerging economies of Asia. Business in these countries has historically centred on friendship and connections and this is unlikely to be changed by a few multinationals flying in to set up their operations. Synertec has invested significant time and resources in developing our local networks and promoting our brand of engineering through our efforts in Singapore and more recently in Malaysia. However success in this region does not only depend on strong local knowledge but, in light of the migration of many western manufacturing companies into Asia, a global network and a reputation for trust and reliability are also key factors driving future growth. We are confident our work so far has placed us on the path to steady growth throughout the region over the years to come.

We have invested a lot of time and money trying to put one of our senior directors in Malaysia to absorb the culture of doing business there. We have had our successes and, admittedly, our problems, so overall it has been a hard but good experience. After two years of learning we are at a sufficient level of understanding; but in order to jump to the next level we now need a senior executive to facilitate networks and “coach” us as a business; someone akin to a non-executive chairman in Malaysia. All of our technical expertise is in place. We have done quite large projects there and are confident in our technical base from which to launch to the next level.

I imagine that the converging trends of a consolidating pharmaceutical market and a growing oil and gas industry invited a lot of competition from similar experts in process automation and analytics. How have you been able to position yourself against the competition?

There is no question that big automation players have entered the market. As such, we have to understand our position. There are big vendors who can do the large-scale projects and it is only natural that the owners of huge facilities will gravitate towards the companies with massive balance sheets. Instead of wrestling with them, we have to pick a niche within our area and be the best that we can; almost fly under the radar of the bigger players. While the larger companies know that we are there, because they are dealing with much larger projects we can go in and solve the smaller side of things such as custody transfer systems.

We have been strategic in how we have approached this market and realize that we are not going to win a fight against the industry heavyweights. Our strategy is to take a little bit of the pie and do a really good job on the slice that we get through technology, intellectual property (IP), experience, and high risk mitigation. The clients are quite happy to give us that responsibility and it has led to the successes that we have seen with integrated online analyzer systems.

In February Synertec was awarded a landmark contract for the QCLNG project. It is one of the largest orders to an entirely Australian systems integrator and Synertec will engineer a total of 45 analyzers for Bechtel, the project’s lead EPC contractor. What would you say earned you the right to work on this flagship project?

It was definitely a very competitive process which we started when the global financial crisis (GFC) really began to bite. Even though the GFC was not a pleasant experience for us we assessed that we wanted to be proactive while the background noise was low. This ultimately led us to meet people from Bechtel. We went to Bechtel’s office in Houston and presented at a luncheon that they hosted. We put ourselves out there with a group of knowledgeable experts asking technical questions about our capabilities for QCLNG work. We capitalized on the opportunity to reach out to potential collaborators while everyone else was going quiet and shrinking into their shells. Doing so allowed fantastic access to various players who were going to play a part in CSG and LNG projects in Australia. Being open with the people who would give us contracts and taking our expertise to open forums played a huge part in earning us the job. It was also a fortuitous event since, after all, you always need a little bit of luck in business.

Do you consider the QCLNG contract to be more “business as usual” because of your past project experience? Or are you placing a greater importance on this because of its size and scope?

It is definitely of a greater size and scope. We went to the market in Australia and examined what we can engineer and procure in Singapore. We could have procured out of Singapore, Malaysia, or Indonesia, but we really believe in a particular risk mitigation if we procure largely out of Australia.

It was an extremely extensive process. Bechtel had a great deal of documentation for us to walk through. In one way, if you are willing to participate in that process, then it will cost a lot of money. But if you get to the end of it and receive the contract, then there is very little that is left unknown.

While process automation and analytics often comprise a very small portion of a project’s overall budget, they generate exponential savings over the full life cycle of the operation. Can you put in perspective the type of savings and efficiencies that your work will generate for the project?

To give an example, an LNG ship gets filled by two trains that run 24 hours per day with each train representing approximately $85 million in revenue. If you are 1-2% off in your process accuracies, then your losses are anywhere between $850,000-$1.7 million per day. This is where highly precise engineering and instrumentation has a particular resonance with facility owners. It is also why companies look at us, trust us, and have faith in our services. The measurements and custody transfer that we provide become incredibly important when considering the potential savings of $1 million per ship.

In terms of process analytics, one of our big differentiating points from our competitors is local knowledge which starts with standards and follows right through to environment. Curtis Island, sitting in a hurricane prone area, calls for very complex Australian standards which are not just a derivative of US or European standards. When presenting to Bechtel they were very engrossed in the rigidity of Australia’s standards and dove into specific details with our experts.

What is also noteworthy about Synertec is that we are not aligned to any one vendor in terms of brand. We can – and do have – experience with ABB, Emerson, and Siemens products but are far from a sole provider of one vendor’s equipment.

Operating in a niche solutions area, do you find yourself straddling a thin line between competitors and partners?

Indeed. A company such as Emerson can be competitors one day and collaborators the next. But it is the open dialogue that we have with other parties that count. We offer multiple solutions to the end user and the OEM. We have had dialogues with companies in which we provide them with a quote for their respective bid and they provide us with a quote for ours. In the end, it is a different solution since one is led by Synertec and engineered from Singapore while the other bid may be engineered here in Australia by a multi-global company such as Emerson. Ultimately, it is up to the end user to allocate risk and determine the best value proposition.

Having now diversified into oil and gas, the growth of this industry in Australia will only strengthen going forward. What are your priorities in terms of growing in this oil and gas arena while still maintaining a focus on other industrial areas of activity?

There is definitely a pull into the oil and gas industry given the sheer size of the projects being undertaken. Learned commentators predict a resource drain on engineering capabilities. Certainly because of our engineering capabilities I think we are going to have a positive pull into this field. I am very excited about the prospects of us being able to deliver good engineering projects into this sphere.

What is your strategy for overcoming the labor shortage that is hitting all industry players amidst the resources boom?

We have tried to create a company which values and strikes the right balance between peoples’ personal ambitions, family, and work. In doing so we have created a business which fosters a flexible workforce and is therefore attractive to people. On the technical side we offer interesting projects which an aspiring career engineer can immerse him/herself in.

We offer these approaches through our Singapore and Malaysia offices. Being that Australia is an attractive place to live and work, if we have a shortfall in labor we can go forward with either of two options: bring over an employee to Australia for short term work or we can fully integrate them into our office here. We are confident in our strong pool of resources in Asia which we can bring in if necessary.

Another prong of our strategy is to identify and employ resources before the fact in order to win contracts. We do not chase contracts and then scratch our heads wondering how we are going to execute. For example, the people who were instrumental in winning the QCLNG contract were on the ground for two years before the process gained significant traction.

What are your main R&D priorities going forward as you forecast certain industry trends?

In the CSG and LNG area, our IP is in sampling systems. We have upfront cleanup and distinct sampling systems which go into proprietary instruments and analyzers. The IP is in taking the sample, making sure it is representative, ensuring that components do not condense out of the stream, and delivering them to the gas chromatographs. Our R&D is about getting that sampling more representative and cleaner, delivering it to the instrument, and generating better data for the operators to be able to control and monitor their facilities.

Despite the commonalities between pharmaceuticals and oil and gas that you referenced earlier, at the end of the day they are two distinct industries. What has been the particular learning curve for you undergoing this diversification?

Apart from being Managing Director, I have a degree in Chemistry so I understand the operations of gas chromatographs, sampling, and representative samples. It has not been too hard for me to get a basic understanding of the technology, systems, and the processes.

Regardless of the industry, this is a business which utilizes people, motivations, and resources that all need to be managed properly. In that respect it has been surprisingly similar as an engineering business. While I may not know the minute details of our automation, analyzer, and process departments, I have to get the best people who are well disciplined and working within the business parameters which I can understand. Synertec has been a continuously growing business for the past 16 years. This has all been just another block of that growth phase.

The typical pattern that we see in Australian oil and gas is for international know-how to invest in Australian and apply their foreign experience in the local setting. Synertec is uniquely following the opposite trend as an Australian company that is expanding and exporting its engineering excellence abroad. “Engineered in America” or “Germany” or “China” each carry distinct connotations and reputations. What do you think “Engineered in Australia” has come to mean?

I like to think of Australians as innovative because we challenge the norm. We are an isolated country so we must be ingenuous, otherwise we will be sitting, waiting months for things to arrive from overseas. Australia is not hung up on nationalism in an engineering context – we take the best of global and adapt it to the local environment. This is certainly something we have learnt from the pharmaceutical industry which was pioneered overseas, but to be globally competitive the products that are made in Australia for export must be at least as good as a foreign manufactured alternative. Our isolation breeds a certain proactive mindset. Yes, we can sit and wait but whatever does arrive probably will take time and won’t be suited for our standards. We solve that by creating a strong culture of engineering innovation in Australia. When people think of Australia I would like for them to think “innovative, thorough, and well built.”

We only have to look as far as the automotive industry to see this in practice. General Motors is well known for outsourcing innovative projects to its Australian arm. Those vehicles do not see the streets of Australia but are designed and prototyped here and then built in the US for the American market. At the end of the day we produce a quality product. Because we cannot compete on the lower manufacturing cost basis of other countries, we have certain IP developments here that are as good as anywhere in the world.

The Australian oil and gas industry is entering a very critical 5-7 year window with new projects coming onstream and a continuously expanding base of services industries. What can we expect from Synertec over this time period?

We are doing a bit of that “naval gazing” as to where we think our next move will be. However, as a conservative company we will not take on too much more outside of what we are currently doing. Our focus is to deliver the QCLNG project as best we can and exceed the expectations of Bechtel and BG. We are careful to not overreach our capabilities. The great thing about Australia is that we can see an idea, establish the capability here, test the idea and systems, and then launch it into bigger jurisdictions. It just so happens that CSG – one of the biggest games in the world – is happening right on our doorstep. We are very happy to do a fantastic job over the next two years with the body of work that we currently have. We are going to stick with our knitting while keeping our eye on the second or third horizon opportunity.

What would be your final message to our readers about Synertec and its ongoing efforts to push the oil and gas industry forward?

International players are converging on Australia. Australian engineering is innovative and has an in-depth understanding of the regulatory environment that will overlay all of these projects. For engineering companies in Australia like Synertec, we have had the benefit of getting that key message across. There are very complex regulatory requirements in this country and equipment coming over cannot just be plugged in; it has to be made to Australian standards. From Synertec’s point of view, the strength of our offering is our knowledge of the standards here. We have experienced engineers and can offer tremendous value for a total package of work. Our message to potential OEM’s and collaborators is that we have extremely robust engineering that understands this environment. We offer a lower risk option and are happy to put our hand up against anyone in the world. We are good at what we do in this environment. Give us a go and I expect you will be pleasantly surprised.

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