For the last 12 months I have been tracking major contract awards in Australia across a range of industries which include; oil and gas, infrastructure, mining, property, defence, renewable energy, power and utilities. We hear a lot of mixed messages about which sectors are busy and which are quiet coupled with which markets are busiest in each state.
I have therefore taken the liberty to produce some graphs based on the data I have collected and provided some of my thoughts on each one.
Award by Sector – Australia Wide
The common perception of the market in Australia is that oil and gas is in terminal decline. This couldn’t be further from the truth given that contract awards in oil and gas have outperformed all other sectors. It is evident that the oil and gas industry is changing and moving from a large scale greenfield construction environment to that of an operations, maintenance and offshore environment. This change should not be seen as the end of oil and gas, but a new era.
Second to Oil and Gas were infrastructure contract awards. When the price of commodities such as oil and gas and steel are in decline it makes for an environment ripe for construction activities. Australia has been in dire need of infrastructure renewal and these are now coming to fruition across all states, as a result of ailing commodity prices.
Those claiming that a new mining boom is just around the corner will be buoyed by seeing mining third on the list of major contract awards. We have seen Lithium, Iron Ore and Gold projects move forward in 2016, setting the scene for a boom in mining through 2017 and beyond.
Top Sector per State
Western Australia and the Northern Territory have the highest awards of Oil and Gas contracts in 2016. This is not surprising given that the majority of projects in Australia in CSU and Construction are based in these states (Gorgon, Wheatstone, Ichthys and Prelude). As these projects are nearing or have reached first gas the clients are starting to award packages of work for post first gas activities as well as commissioning and start up packages. One would now expect the next 12 months to bring substantially less awards and a move towards concept/FEED and brownfield contracts on existing facilities. Given the high number of contracts awarded by the operators it would be safe to say that the work force demographic will shift from Operator bias to supplier orientated over the next 12-36 months.
Infrastructure is dominating the Eastern States and most surprisingly Queensland. Why surprisingly? As Queensland has three operational LNG plants one would expect to see oil and gas as the top sector in the state. However, the bulk of LNG contracts were awarded in 2015 meaning the burgeoning infrastructure market has been able to leapfrog oil and gas to become the number one sector in the state.
Queensland could offer a window into the future of Western Australian and Northern Territory market growth as I would expect to see a deceleration in oil and gas contract awards over 2017 with an increase in Infrastructure and mining awards.
It is evident that the majority of work moving into 2017 will be geared around infrastructure construction, especially in the Eastern States.
Local vs. International
There is much talk that work is being farmed out overseas. It is evident from the analysis however that this is not the case. The packages of work that are being shipped overseas seem design oriented and at the early stages of offshore projects. It appears subsea oil and gas work is remaining in Australia but topside and floating structure design is going overseas. Mining and Infrastructure work is remaining in Australia.
It might be that contractors need to look at diversifying into areas where packages of work are being awarded in order to adapt to the shifting market place. But to say that all work is going abroad would be a grossly incorrect assumption.
Project Phase Awards – All Vertical Markets
The graph above needs some discussion in order to fully understand the spread of projects. Australia has moved into an Infrastructure boom off the back of a fall in commodity prices such as fossil fuels and iron ore. Therefore, as we can see from the graph, construction activities have grown rapidly; particularly in the Eastern States but also in Western Australia.
Further analysis of the raw data indicates that oil and gas does not contribute heavily to the construction boom. >90% of the construction projects being awarded are in the Infrastructure vertical. The remaining circa 10% have been in mining but some of these awards would be classified under brownfield as they are upgrading ailing mine sites and equipment from the boom days.
Operations, Maintenance/Brownfield and IHUC contract awards have also been high and have been resource sector centric. The two main areas for these awards have been oil and gas and mining, most notably in Western Australia and Northern Territory. More specifically with a high percentage on the Ichthys LNG project, Prelude FLNG project and various Woodside assets.
EPC/I awards have been biased towards Mining and Infrastructure with the concept and front end work being in oil and gas, defence and some mining.
Exploration awards appear low as the E&P companies typically carry out this phase themselves and wouldn’t award many major exploration contracts to suppliers. Although having said that, exploration has been minimal in 2016 but should increase sharply throughout 2017 and 2018 as long as oil prices continue to rise off the back of the OPEC and Russian rhetoric of curbing oil production in light of the increased crude global glut.
Most Successful Contractors 2016
The majority of this work is off the back on Inpex, Shell and Chevron all gearing up to move their projects into Operations and Maintenance along with the final stages of installation and hook up.
Other successful companies are either from the construction of offshore industries which is showing us that 2017 will be geared towards infrastructure construction, offshore field developments and installation, hook up and commissioning (offshore).
The market in 2017, in terms of job opportunities, is going to be heavily biased in favour of offshore oil and gas.
Most Active Clients Awarding Contracts in 2016
The final graph illustrates the most active awarders of contracts in Australia. It is not surprising that Shell and Inpex are leading the way in awarding scopes of the Prelude FLNG and Ichthys LNG projects respectively. However there is also a wide range of mining and infrastructure clients who have been active in Australia awarding scopes of works.
The data provided supports my previous blog
on the future of oil and gas markets in Australia. Operations and maintenance are obviously going to be the largest growth area but we cannot ignore the massive increases in offshore and subsea scopes of work.
The industry to watch in 2017 will be mining with several large scale mining projects gearing up in the next few months.
Infrastructure awards may increase in Western Australia but I believe we have seen the largest scale awards in 2016, and 2017 will bring with it the execution of those scopes of work awarded.
Final note – it isn’t all doom and gloom out there people! Be targeted in your job searches!