HOUSTON—Ian Macfarlane, Australia’s minister for industry and science, offered some friendly advice to the fledgling U.S. LNG industry at the recent IHS CERAWeek 2015 conference in Houston: Learn from our mistakes.

“Don’t put in 14 trains at once,” Macfarlane told Atul Arya, IHS’s senior vice president, during an interview before a conference crowd. “It puts so much pressure on your skilled labor market.”

Though prices have fluctuated in Australia and Asia, Macfarlane also said that ultimately the U.S. will be the place to watch for the global price of natural gas.

For now, other costs have Australia’s attention. Getting the nation’s infamous LNG project cost overruns under control is possible, Macfarlane said, adding that he was confident it would be accomplished.

“Paying welders $300,000 a year to work three-quarters of a year—it’s hard to be competitive,” he said.

Later, Macfarlane elaborated on the labor issue to a group of international journalists.

Soaring wages, he said, derive from a shortage of skilled laborers needed for the country’s ambitious construction projects. Companies have resorted to flying workers great distances—from New York to New Zealand to Australia—and devising creative staffing schedules to complete the work.

Foreign workers have been brought in on a semi-permanent basis, and domestic training programs have helped alleviate the shortage, but the most obvious solution is to complete the projects. As trains come onstream over the next several years, the need for workers will dissipate.

“We’ll go from a famine to a feast,” Macfarlane told reporters. “We’ll have a very, very heavily oversupplied skilled labor market and at this stage we’re not sure which projects they’ll be working on.”

Australia’s LNG construction terrain has drifted from land-based projects to floating LNG (FLNG) vessels, the first of which is Shell’s Prelude, now under construction in South Korea.

“You could see four or five more ships come before you see any substantial expansion in land-based LNG,” he said. “That’s going to create an oversupply of skilled labor.”

Macfarlane said he did not foresee government engagement in pricing LNG.

“We’re certainly involved in market access, particularly into China,” he said, “and at times we lent support to companies that were trying to sell into Korea, but we never get involved in negotiations. There are negotiations and renegotiations going on every day in the oil and gas area. We don’t get involved in pricing.”

The higher price of domestic gas and its link to exports is more complicated, Macfarlane said.

The coal seam gas (CSG) industry gathered in netbacks of $8 to $10 per million Btu (MMBtu) by selling to Japan and other Asian markets. That made exports lucrative. Domestically, extracting vast reserves of CSG—60 trillion cubic feet—did not make economic sense in a market where the price was closer to $3.

“You can’t get coal seam gas out for $3,” Macfarlane said. “You can’t get it out for $4. You might get it out for $5.”

The internationalized price of Australian CSG, with its built-in upward pressure from Asian markets, might have been balanced by development of gas resources in New South Wales (NSW), but that didn’t materialize. NSW, dependent on other states for its gas, has seen its prices jump.

But the future global price of natural gas, Macfarlane believes, will be set at the Henry Hub terminal in Louisiana, which sets the benchmark U.S. price.

“At the moment, there’s a premium into northern Asia and Australia is geographically positioned to take advantage of that, but we’re watching what’s going on in America,” he said. “The cost of gas will be the Henry Hub price, then the cost of transport, plus the cost to liquefy then the cost to gasify.”

Contact the author, Joseph Markman, at jmarkman@hartenergy.com.

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