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Joint Select Committee on Northern Australia
20/05/2014
Development of northern Australia

CASS, Ms Rebecca, Senior Stakeholder Management Adviser, External Affairs, INPEX

DURACK, Ms Mary, Community Relations Coordinator, INPEX

KILDARE, Mr Sean, General Manager Darwin, INPEX

[15:54]

CHAIR: Welcome. These hearings are formal proceedings of parliament. Giving false or misleading evidence is a serious matter and may be regarded as a contempt of the parliament. The evidence given today is recorded by Hansard and attracts parliamentary privilege. I invite you to make a brief opening statement, and then we will then open it up to our committee members for questions.

Mr Kildare : I would like to acknowledge the Larrakia people, close associates of ours, and acknowledge their elders, past and present, on whose land we are meeting here today. I do thank you, on behalf of INPEX Australia, for the opportunity to attend this hearing on the development of northern Australia. In this opening statement about the operations of INPEX and the Ichthys project I will be setting out the opportunities we see for the LNG industry to play an ongoing role in the development of the north. INPEX has been in Australia since the mid-1980s. We are Japan's premier oil and gas company and the largest Japanese investor in Australia. Japan, our primary market, is the world's largest buyer of LNG, accounting for approximately 37 per cent of the global LNG demand as delivered. INPEX is ranked in the top 50 global energy companies and involved in 79 operations across 28 countries. We are present on every continent in the world except Antarctica.

As APIA noted in its written submission to this committee, more than a third of current business investment in Australia is in the LNG sector at this time. That investment generates a significant contribution to the nation's GDP and is responsible for more than 100,000 direct and indirect jobs and for the service and supply opportunities that are growing across the nation's economy. INPEX alone directly employs more than 1,000 people around Australia. Our Ichthys project contractors and subcontractors employ thousands more. Many of them are Territorians.

As a stable democracy, Australia has a strong competitive edge for attracting investment. The country's parliamentary systems, rule of law, property rights and social frameworks give INPEX and our financial backers the confidence and certainties that policy decisions will be considered properly and will be well informed. INPEX Corporation has set ambitious growth plans to more than double our production from approximately 425,000 barrels of oil equivalent per day to more than one million barrels of oil equivalent per day within the next 10 years. Australia is increasingly a very big part of that growth strategy. The vast natural gas resources to be found across northern Australia mean that, as a nation, we are well placed to meet not only our growing demand for cleaner energy but also the growing demand in our region. Already INPEX in involved in the Van Gogh, Ravensworth and Coniston oil projects, the Kitan oil development, Darwin LNG and the Bayu-Undan gas fields, Prelude FLNG and, of course, the main topic of today, the world-scale Ichthys project currently being built here in Darwin.

As some committee members will be aware, the US$34 billion Ichthys LNG project is the first for INPEX as an operator. The project is a joint venture between the INPEX group of companies, major participant TOTAL and the Australian subsidiaries of Tokyo Gas, Osaka Gas, Chubu Electric Power and Toho Gas. When Darwin was selected as the site for the project's onshore facilities in 2008 it was a bold decision. Constructing an 889-kilometre-long pipeline to the gas field would be challenging, but it was one taken because of the many benefits and certainties offered by doing business here in the Territory. Successive Northern Territory governments have created an environment that is investment friendly. Consistent high-level support from the NT government provided our project participants with confidence in their investment here and with the confidence to proceed. Blaydin Point was readily identified as available for development for our onshore facilities. The government's stringent but streamlined approval processes, including appointing a dedicated project team to provide a one-stop-shop approach in support of the project, reduced the green and red tape burden that may otherwise have been felt.

This world-class project is now fast approaching its 50 per cent completion milestone. Once operational, it will deliver up to 8.4 million tonnes of LNG and 1.6 million tonnes of LPG per annum to the global markets, as well as approximately 100,000 barrels of condensate per day at peak over the 40-year life of the project. The project will also deliver multigenerational social and economic benefits to Australia, particularly here in the Northern Territory. As at 31 December 2013, nearly 4,000 people had been employed directly through our main engineering, procurement and construction contractor, JKC, here in Darwin. More than 60 per cent of those live locally. The workforce skills, trade and professions required on site will start to change as we transition from the civil works into a more technical phase, but nevertheless we will have been pleased to see such a positive employment outcome for the local community to date. As at 31 March, more than $10 billion in project commitments have been awarded to Australian companies. More than $5 billion of these commitments have been awarded to NT based companies and approximately $1.5 billion has already been expended here in the Territory.

INPEX, like many other oil and gas companies, has a strong commitment to building mutually beneficial relationships with Aboriginal and Torres Strait Islander people, including through job and business creation opportunities. More than 450 Aboriginal people have been engaged on the project since its construction began, including apprentices and trainees. To date more than 150 Aboriginal people have completed a range of skills based training, including civil construction, general construction and more complex steel fixing. Of these 110 have been engaged in work on the project following the completion of their training. Forty-one Aboriginal businesses have been awarded work scopes across 90 packages in this project, 91 businesses are now listed on the ICFIS projects onshore Aboriginal and Torres Strait Islander business register, which helps contractors identify and connect with Aboriginal businesses as they formulate their package bids. The economic benefit is flowing through the community in direct and indirect opportunities such as the offshore logistics base under construction by the Toll Group, which will create 20 permanent jobs in operation here in Darwin.

Major companies and projects such as ours also invest in the development of social and services infrastructure for the benefit of the wider community. We certainly are acutely aware that we will be part of this community for decades to come. It is why Inpex and the ICFIS project have invested $3 million in the Charles Darwin University Northern Australian Centre for Oil and Gas, a further $3 million in the NT Open Education Centre and a further $3 million in the Larrakeyah Trade Training Centre, advancing a suite of education and training opportunities for a broad range of local Territorians. The project has also invested more than $22 million in local road and infrastructure programs and we are a cornerstone client of the Northern Territory's new marine supply base, which is going through its final commissioning processes as we speak.

It is my belief that the ICFIS project will be central in the development of Australia's LNG industry as a major player on the global stage. In turn, development of the LNG industry is a driving force in the sustainable development of Northern Australia. But despite our vast natural resources the LNG industry in Australia is facing growing competition from international markets that must be addressed if we are to realise the potential for growth. As noted by APPEA, our industry representative body, the regulatory burden of red and green tape is one of the most significant factors impacting on competitiveness and the attractiveness of investment in our industry. We encourage all levels of government to continue to review the opportunities to streamline regulatory approval processes to support efficiencies and transparency. The APPEA submission also highlights the additional challenges to development of projects in Northern Australia from the higher costs of doing business in Australia and the need for greater levels of investment in infrastructure. Also needed is the confidence and boldness to invest in and support new and emerging technologies such as floating LNG and a willingness from governments to work with industry to harness these opportunities.

As I noted earlier, INPEX is an equity participant in the Prelude FLNG project. We are also participating as the operator of the Abadi Project in Indonesia. We operate that as an FLNG project as well. FLNG has the potential to offer greater flexibility in the development of stranded resources in a more efficient and cost-effective manner. While FLNG is only just emerging as a viable development option, it is a step change that enables the industry to develop fields which would remain either geographically or commercially isolated and thus undeveloped. As we look to find ways to be more cost-effective, environmentally sensitive and target more remote developments, we must support the innovation that will encourage investment and growth in the LNG sector and the development of the regional communities that support these projects. As LNG projects and markets continue to emerge globally, the competitiveness of Australia's LNG is challenged by the higher costs of our domestic operating environment. Australia's competitive advantage of political stability, clear policy frameworks and streamlining red and green tape cannot be underestimated as an asset in the development of Northern Australia.

Mr Chairman, ladies and gentlemen of the committee, I am very happy to take your questions.

CHAIR: Thank you very much indeed. I understand we are travelling to your plant on Thursday afternoon. We will have a look at it firsthand, and I am looking forward to that.

Mr CHRISTENSEN: Why did INPEX pick Australia as an investment opportunity? You have outlined all of the challenges there to the sector, with the growing amount of regulation and the lack of competitiveness. I am just wondering what the reasons were, apart from obviously the resource, for INPEX seeing this as a good investment opportunity.

Mr Kildare : INPEX is Japan's flagship upstream oil and gas operator. It chose to make investments in Australia, commencing in 1988; and it has been a long-term, committed and reliable investor in a number of projects around Australia since then. The decision to move from investor to operator was taken with the opportunity to explore for and develop the reservoir that is now known as the Ichthys gas condensate field. At that point, there were a number of advantages that the company considered carefully in terms of low sovereign risk, the quality of the resource, obviously, and the available assets and resources in Australia that could be brought to bear to develop the reservoir at the appropriate time.

Mr CHRISTENSEN: I have spoken to other resource companies and they have told me that, after the challenges they have experienced in getting projects up and running, if they had known at the start what they knew by the end of it, they might have rethought the investment. Have the challenges been of a significant nature such as that? And what really can we do, apart from the removal or streamlining of regulation of red and green tape, to assist in enhancing development opportunities such as yours throughout Northern Australia?

Mr Kildare : Large-scale oil and gas projects typically have a very long gestation period. Their development time frames and their operating time frames are even longer. So, as operators of oil and gas projects, you experience long-term engagement with a range of stakeholders, including governments, which do change; policy views and priorities do change; and community views and attitudes evolve, subject to whatever influences are brought to bear in that space. So, as to your question on whether some operators of other projects, maybe those that work in shorter time frames such as mining projects, would have started, if they knew what they knew at the end—I cannot comment on that. But certainly INPEX as operator of this project and our Ichthys joint venture partners are as happy today as we have been throughout the entire life of this project to date with the commitments we have made. Our representation today is one of offering and highlighting suggestions for how we may improve things moving forward, to build on what we have and take it to the next level.

There is no doubt that the certainties those have been offered by the Australian and the Northern Territory governments to the Ichthys project have been pivotal in the decisions for the commitment to develop, and those certainties remain in place today.

Senator PERIS: Thank you, Sean, for your presentation. With regard to the project, can you give us the time lines of the project?

Mr Kildare : Do you want me to start from year dot or from today?

Senator PERIS: When do you envisage finishing? I am just trying to find out whether we have hit the peak of the project. Is there more to come? Are there more people coming in?

Mr Kildare : That is a very good question. In a very short summary: the whole of the project—so not just the onshore plant construction that is visible to everybody here in Darwin but also the offshore production facilities that are being built in various locations and the subsea gas-export pipeline connecting them all—will be 50 per cent complete in early July this year, so we are very happy to see that the project remains on schedule. From here, the peak of onshore construction in the Darwin area will arrive in approximately mid-2015 but, as you can see now, looking across the harbour, the project is seriously starting to come out of the ground in a very visible way, and we are still on schedule to complete our construction in late 2016 with a view to our first export cargoes departing shortly after that.

Senator PERIS: As to the INPEX accommodation that you have for 3,500 men: who currently owns that? And what will happen when the project is completed? Is that part of a community benefits package?

Mr Kildare : The site itself is retained by INPEX under a crown lease, so therefore the underlying land tenure is owned by the Northern Territory government. The assets and facilities on it are owned by INPEX and, at some point in the future, a decision as to what will happen to that site will be made in consultation with all the relevant stakeholders, with government, obviously, being one of them. That conversation is ongoing at this time.

ACTING CHAIR ( Ms MacTiernan ): Tash, you are next.

Mrs GRIGGS: Sean, earlier today we heard from Rusca Brothers who provide services to you, and we were delighted, as a committee, to hear of their success. I was a bit concerned that their story had not got out there. But their success was directly related to you. Could you take this on notice: how many other success stories like the Rusca Brothers' are out there that are not talked about? I know, Mary, that that is probably something that you do as your community engagement. There are some good news stories out there. To see the model you have for engagement would be useful for us as a committee, to see why that has worked. We would have an example of how it has worked. Would you mind taking that on notice?

I would also like to ask: what do you think your success can be attributed to? Is it the way that you engaged with the community way before anything started? Is it the people that you have? Is it the way that the community has been engaged? You talk about the way that the government has engaged. We have had this conversation, but I think it is really important to get that story on the record and for my colleagues here to hear what you think caused the success.

Mr Kildare : Thank you for your question. In many ways you have helped me answer it. A little bit of everything that you mentioned went into the formula that has brought us to this point of success with community engagement. At the point of our final investment decision in January 2012, we conducted a poll of the Darwin community, where the onshore part of the project will be conducted. It was a very large sample that we polled, so the result was statistically significant. We were surprised to see an approval of the project and INPEX of 86 per cent, which was very heart warming.

Mrs GRIGGS: Amazing.

Mr Kildare : We put our success down to a very concerted and honest effort to communicate with the broader stakeholder group—being accessible to people and repeatedly providing information about the project, tailored to their needs and tailored to their ability to understand. I also appreciate your comment about the people we have. We have assembled a team who have been with us a long time who have done a great job, spending many hours with stakeholders—all the time they need to, including weekends and out of business hours—to make sure they had the required level of comfort that we are transparent, we are local and we provide them with the answers that they need.

So the relationships we have with our stakeholders are close, they run deep and they are genuine. In all my 25 years of working in the mining and oil and gas industries around the world and all over Australia, this is certainly the crowning achievement of stakeholder engagement, here in Darwin.

Mrs GRIGGS: I do not think what you have done here is the same in other jurisdictions. That is why I was keen to get it on the record. It is a model that seems to be working. Warren, I think you agree that the way they have engaged is important.

ACTING CHAIR: I am interested in your choice of technology. Obviously in other parts of the Browse and in the Timor Sea the companies are very much promoting the floating platform and processing. Was your selection of a pipeline a case of your being in the queue a bit earlier, before this technology had really become commercially available? I am interested to know, because there is quite a lot of controversy, as you would know, both in Timor and in Western Australia about the floating platforms.

Mr Kildare : We at INPEX were well aware of the opportunity for floating LNG when we were considering options for the development of this project, and it is something that is there for us to consider in the development of other resources. But the commitment to develop the Ichthys field, bringing the product onshore for further development, was made in the best interests of the resource, maximising its economic potential and productivity, and also in the best interests of all the stakeholders concerned.

Yes, INPEX is involved, participating and operating FLNG projects elsewhere. But INPEX does not see the emerging FLNG technology as an either/or scenario. It is a development option that is appropriate for some stranded, remote gas fields that may not otherwise be developed for various economic, technical or commercial reasons. But, taking a long view of gas development opportunities, we certainly do not rule out a future that sees additional onshore development.

ACTING CHAIR: That is interesting, because it runs counter to the advice that some of the other companies are giving.

Mr SNOWDON: They are surely making money out of it. Otherwise they would not be doing it.

Mr Kildare : Yes. I certainly cannot speak for the mindset, the commercial interests or the decisions of other companies. How they view their circumstances is up to them.

ACTING CHAIR: Where are your floating LNG operations?

Mr Kildare : We are a non-operating participant in the Prelude FLNG project in the Browse Basin and we are also the operator of the Abadi FLNG project in Indonesia.

Mr SNOWDON: Can I go to the question of labour. Six per cent of your labour force live locally—

Mr Kildare : That is right.

Mr SNOWDON: so the remainder, I am assuming, are FIFOs?

Mr Kildare : That is correct.

Mr SNOWDON: Where do they come from? Are they from all over the country? How do you source them? Are you sourcing them because you could not source that labour in the Northern Territory? When you answer those I will have a subsequent question.

Mr Kildare : There are a number of reasons or drivers for what is a fairly eclectic mix in our workforce. There are some fly-in fly-out workers who come to us from other states in Australia because they come with companies that are providing a very specific service in the construction process, a technically challenging scope of work, and the experience in those companies comes in a fly-in fly-out deal. There are also some workers who fly in from internationally, particularly some of our highly technically experienced supervisory and project management staff. It is a tailored solution to meet the needs of each scope of work, the schedules of the project and the cost profiles of various packages of work. There are a number of moving parts that create these outcomes.

Mr SNOWDON: I am asking these questions because we have had evidence from other places that there is real opposition to FIFO in some communities—not communities the size of Darwin, I might add. It impacts on the amenity of the community. Money goes out of the community and does not stay in the community. There are a whole range of issues. I think it is important that we understand, or that those who might read this evidence understand, that a significant proportion of your labour is employed locally. Tell us how you see your interaction with the local community—the camp, what its engagement is, what it does for the community and how much money you think is coming out of the INPEX project in terms of wages into the community on an annual basis.

Mr Kildare : Firstly, thank you for your question. It is a very good one. It is a relevant one. The cost of labour and getting access to enough of the skilled, trained labour in the Australian major project development context is difficult. We are a large country with a relatively small population, and the effect of that is keenly felt or keenly observed by us here in the Northern Territory, particularly Darwin. The population in the greater Darwin area is approximately 130,000 people. We, as a project operator, are in an interesting position with our construction contractors, because we have to help find the balance that works for all the stakeholders concerned. On the one hand, for example, we are driven quite publicly by many of our stakeholders to maximise local employment and not to do fly-in fly-out. Yet, on the other hand, those same stakeholders will say, 'Please don't take all of our electricians and plumbers' et cetera.

These massive projects have a voracious appetite for these kinds of labour resources. I am aware of how many registered electricians there are in all of the Northern Territory. I could employ every one of them tomorrow and leave nothing for the community, and it still would not be enough. I am using that as an example. I am not saying that I would ever do that. What I am saying is that it is a difficult balancing act to manage the desires of local stakeholders who say, 'Please maximise local employment but please don't take all of our qualified tradespeople.' So I quite often say to people: 'Be careful what you ask me to do because, if I actually do what you want, you won't like the result in the labour context.' I do not know what the point of balance is, but I suspect it is sort of something where everybody is equally unhappy. We might get there.

Mr SNOWDON: Are you doing any sort of social impact assessment on the way through?

Mr Kildare : Yes, we are. We have an ongoing social impact management planning process that is reported through to the Northern Territory government and communicated in part to relevant parts of the federal government. We update that continually. My colleagues present here today end up spending a large amount of their waking hours working on the various elements in that. That is something that we take very seriously. Again, I would hate to think this sounded like bragging but we have enjoyed some compliments from various government sectors stating that our SIMP, as it is called, has set a benchmark.

Mr SNOWDON: I will just follow that up by asking about the camp. I recall well the sort of travails of the arguments around whether or not a 3,500-person camp was or was not appropriate. How has it settled in? What has the reaction been of the surrounding community? Have your ambitions about it been fulfilled or have there been impediments that have stopped you in succeeding in getting the outcomes that you want in terms of the camp itself?

Mr Kildare : The accommodation village at Howard Springs has to date been a resounding success. They have settled that facility into the local community area very well. It has been some significant time since I have heard of any complaint from one of the local residents.

Mr SNOWDON: Or local member.

Mr Kildare : We do enjoy a very good relationship with the local member for Nelson. We have paid careful and close attention to the needs of the local community, helping them adjust to this change to their local landscape. We have invested heavily in improving traffic infrastructure in that area. We manage the village with very strict controls over resident behaviour to ensure that some of the imaginary nightmares that local residents were presenting us with in the very early days never materialised, and they have not. So we are very happy with that.

Mr SNOWDON: In terms of the next stage of the development, post construction, you have identified that there are particular skills sets that you need. Do you have a process in place of trying to nurture some of those skills locally now so that when you need the workforce in two years time or 2½ years time that workforce is available?

Mr Kildare : We do. Preparing for operations and creating the best possible environment we can locally to draw upon the local resources to work with us in operations is something that is taking a significant amount of our time and resources. For example, in my opening statement I mentioned a $3 million commitment to the Charles Darwin University's North Australian Centre for Oil and Gas—the NACOG, as it is called. That NACOG facility was specifically built and operates to provide not only research support to the oil and gas industry but also training support for onshore gas plant operators. We are currently in discussions with NACOG management about how we can take the resources of that facility to the next level and sorting out the training requirements that we have with them. I am aware that other operators in the industry are also using that facility.

I found it an interesting observation when I first came here to the Northern Territory five years ago that all of operating and proposed onshore LNG facilities in Australia were above the Tropic of Capricorn but all of the training institutions that supported them were below it. In long-term discussions with successive governments and also Charles Darwin University, we have gone some way to rectify that.

Mr SNOWDON: As the member for Lingiari, I thank you for your contribution to the Northern Territory economy—most particularly as all of the economic activity you participate in, except for office, is in my electorate.

Mr Kildare : It is my absolute pleasure, and I thank you.

Mrs GRIGGS: I am sure that 60 per cent of the people employed are from my electorate.

CHAIR: I thank you very much for your contribution. It has been most enlightening. We certainly appreciate your contribution. If there are any other questions we will put them in writing through the secretariat.

Mr Kildare : Thank you very much, Chair, and committee for the opportunity.