Competing in the global LNG market: Evolving Canada's opportunity into reality

People, processes and costs

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Solving the cost challenge is not easy. These are multi-faceted projects being executed in difficult operating conditions. In Canada that means starting with little existing infrastructure, challenges in securing adequate labor capacity — at a fair price — and very stringent regulatory processes. Similar to the emergence of the oilsands industry some 30 years ago, in a relatively remote region of Northern Alberta, the LNG industry will be developing on predominately greenfield sites without some of the existing infrastructure that exists for many of the proposed US sites.

Moving LNG projects forward comes at a steep price and one misstep can result in significant cost overruns. We’ve already seen the effects of this in Australia and the result has left many cautious. Cost blow-outs have severely pressured project returns and challenged the viability of the Australian industry. Many of these same LNG developers are involved in the Canadian LNG projects and advancing these projects will require confidence that the Australian cost experience will not be repeated.

The costs associated with LNG grow even greater when labor challenges enter the equation. Finding the labor to advance Canadian projects will be challenging. High levels of development and construction activity are causing shortages of skilled labor across the country, e.g. mechanical, electrical and process engineers, construction foreman, welders etc. Exacerbating this challenge is the increased need for specialized LNG specific skill sets (aluminum welders, for example), where experience is limited in Canada. Increased demand for specialized skills will drive costs up and lead to higher salaries, perquisites and training costs, and, at the end of the day, high project costs. Adding to the labor force dynamic, the use in Canada of temporary foreign workers has recently come under fire.

To help solve the labor challenge, the BC government announced a LNG-labor working group that included 18 representatives from government officials, organized labor, the Haisla Nation and major LNG industry players. The group produced 15 recommendations to tackle apprenticeship, training and other challenges in growing the LNG industry. The report is publicly available and actions are underway to implement the proposed recommendations.

Realizing better cost management and improving efficiency begins with the following steps:

  1. Identify addressable cost base and set targets
  2. Conduct analysis and examine cost levers to diagnose improvement opportunities
  3. Manage implementation of initiatives for delivery of real benefits
  4. Stabilize cost management program and rollout sustainable processes
  5. Consistent approach across business units — to leverage learnings

Addressing labor concerns is only one of the important elements of successful project management. Project success also depends on a sophisticated and holistic approach to project and cost management, from the fundamental structural design of the organization, to creative contractual terms for project build-out, to the use of technology to increase reliability and reduce costs. Innovating at every turn is essential. Companies must re-think traditional business processes and embed digital oilfield concepts such as remote operations centers directly into projects at the outset, develop operating practices for the underlying natural gas development and production operations that align to the unique challenges and opportunities posed by unconventional resource development.

EY's Performance Agenda framework

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