Australian oil and gas workers are the highest paid in the world, and earn up to 25% more than their counterparts in the US, according to a recent survey.
According to Hays Oil and Gas Job Search, Australian workers pocket an average of US$163,600 ($159,000) a year working on a range of projects from offshore oil and gas rigs to drilling for shale oil and gas in blistering heat in the Australian outback.
It's no wonder then that almost all Australian liquefied natural gas (LNG) projects have experienced cost blowouts. Chevron recently announced that its budget for the Gorgon LNG project had blown out to $52 billion partly because of labour costs, while Santos Limited (ASX: STO) has also announced cost increases for its Gladstone LNG project. Woodside Petroleum's (ASX: WPL) recently completed $15 billion Pluto LNG project ran a third over budget and was 16 months late, and Origin Energy (ASX: ORG) has said that it will face capital expenditure pressures at its US$20 billion Australia Pacific LNG venture.
High costs and increasing volatility in the end price are probably one of the reasons why BHP Billiton (ASX: BHP) recently sold its stake in Woodside's proposed Browse LNG project.
Thanks to our population of around 23 million, compared to 314 million for the US, Australia lacks a deep labour pool, hence the reason our unemployment rate is hovering just above 5%, and the high salaries paid for limited skilled workers. It also doesn't help that much of the work is dangerous, or in extreme environments such as that found in the Australian outback.
In many cases, the oil and gas industry also has to compete with the mining industry for workers, with pipe layers, welders and engineers in high demand from both industries, according to the report.
Foolish takeaway
We have suggested previously that high labour costs could drive oil and gas companies out of Australia and into cheaper locales like Africa. That could put at risk $164 billion of oil and gas projects currently being constructed, as well as several mega LNG projects on the drawing board.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in BHP, Woodside and Origin.
