AUSTRALIA • CHINA • INDIA • JAPAN • NEW ZEALAND • ASIA PACIFIC
feb 2015 - Apr 2015 • Issue 11
AUSTRALASIA AustralaSIA’s QUARTERlY Oil , Gas & Mining Magazine
COULD CHINA ENTER THE COAL MARKET? OIL FLOWS FROM SHELL’S GUMUSUT-KAKAP PROJECT
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Editor’s Letter Australia’s economy is undergoing some substantial transitions but it is important to remember that we have one of the healthiest economies in the world. Considering the continuing transition underway in our resources sector, from the investment phase leading to the production and export phase, it is important to remember that the challenges presented to Australia by these transitions are tackled from an irrefutable position of strength. Australian media seem to be telling anyone who will watch, read or listen that ‘the sky is falling’ in the Australian resources sector but there are also some interesting energy and resources sector facts that are not usually being reported.
Len Fretwell Publisher / Managing Editor Digging & Drilling Australasia and WARR Magazine
Notably, LNG now looks to become Australia’s third largest export. Australia’s contracts for LNG throughout Asia and India are for enormous volumes and are locked in for the next twenty years. India has recently built twenty-four new coal fired power stations and there are plans to build another thirty five new plants next year. The demand for coal in the Asia region is enormous and rapidly growing. The recent AU$152 billion injection for fifty five infrastructure projects in China will stimulate stronger steel demand. Also, only 2% of the China population currently drive cars and this figure is predicted to double in the next five years. China currently has seventy-five coal fired power stations and China will require a lot of our iron ore for the steel to manufacture vehicles and for infrastructure construction and our coal for electricity. To put this into perspective, there are over 600 coal fired power stations in the US. Australia resides in Asia and we are the closest major source of resources in the Asia Pacific region. The world will need coking coal for steel, brown coal to fuel the power stations fires and LNG for energy for many years to come and the volume of demand will dramatically increase. Two things worth mentioning happened to me just before the festive season. Firstly: my work car air-conditioning started to blow hot air, I took the car to a well-known Perth auto electrician and was told that my compressor had failed and it could not be repaired. I remembered having a compressor reconditioned some years ago so, I surfed the internet for a second opinion. As it turned out, it could be repaired and at around half the cost of buying a new one. If you come across this common car air-conditioning problem and are told that you have no option but to buy a new compressor, I suggest you give Mike at Autocool Components a call, he has been repairing car air-conditioning compressors in Perth, for over 30-years. The second event took place on the Kwinana freeway. A car was pulled over a few car lengths in front of me by the Police but it wasn’t speeding. The car was pulled over because it was travelling in the right lane level with the car in the middle lane. It would appear that ‘Keep Left Unless Overtaking’ is not a suggestion, you can actually get booked for not doing it. Sitting in the right lane travelling beside another vehicle is not just inconsiderate, it can cause road rage, accidents and it can actually get you a ticket! I recently met Danny Green, Founder of the Danny Green Fighting Chance Foundation and learned that his Foundation is doing some great things for people that are a lot less fortunate than we are. To raise funds, Danny has organized a charity motorcycle ride on the 15th of March, 2015. If you can help this great cause, please contact DGFCF CEO, Andrew Rogers via email; andrew@dgfcf.com If you like what we’re doing here at Digging & Drilling Australasia, please follow us on Twitter;
@DiggandDrill We are always looking for interesting energy and resource sector news and innovation content and I invite industry members to contact me direct with any news that may be of interest to our readers. I hope you enjoy reading this first 2015 edition of D&D Australasia and I look forward to your feedback. Best regards
Len F retwell www.diggingdrilling.com
www.warrmagazine.com
WHAT’S IN THIS ISSUE 06»
IN THIS ISSUE 3 EDITOR’s LETTER 6 MOMENTS IN PICS: AOG PERTH 2014 10 News in Brief: Oil, Gas & MINING News highlights for the QUARTER 11 Oil Flows from Shell’s Gumusut-Kakap Project 18 Project PostCard: Draugen Field 22 Agility, operational excellence & innovation among key challenges for Australian miners 26 The Catalyst to open the floodgates of Chinese Investment 31 Could China enter the Coal Market?
Digging & Drilling AMP TOWER - LEVEL 28 Australasia 140 St Georges Terrace Perth WA 6000 Tel: +61 1300 284 637 Fax: +61 (8) 9300 9435 Feedback info@diggingdrilling.com News inquiries editor@diggingdrilling.com Advertising inquiries len.fretwell@diggingdrilling.com • Mobile: 0417 001 080 Editor Writers GUEST Writer SPECIAL FEATURES
Len Fretwell Robin whitlock, Stephen Dawson, ANDREW BURRELL NATASHA (KITTY) CANN, Lesley Kemp, Giles Dutfield EMMANUEL SOLOMON
Graphic DESIGNER wATER LI Subscription SUBSCRIPTION@diggingdrilling.com Publishing Digging and Drilling is a Trading name of LF Family Trust Information ABN: 97 893 623 301 VISIT US AT www.diggingdrilling.com Follow us on twitter @DiggandDrill SISTER PUBLICATION WARR MAGAZINE WWW.WARRMAGAZINE.COM COVER Shell’s Gumusut-Kakap Project Digging & Drilling Australasia welcomes comments and suggestions, as well as information about errors that call for corrections. We are committed to presenting information fairly and accurately. Disclaimer: Reasonable care is taken to ensure that Digging & Drilling magazine articles and other information are up-to-date and accurate as possible, as at the time of publication, but no responsibility can be taken for any errors or omissions contained herein. The opinions expressed are those of the authors and do not necessarily reflect the views of Digging & Drilling Magazine. The publisher, editors, contributors and related parties shall have no responsibility for any action or omission by any other contributor, consultant, editor or related party.
4 DIGGING & DRILLING MAGAZINE FEB 2015 - APR 2015
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Moments
MOMENTS IN PICs »
AOG PERTH 2014
6 DIGGING & DRILLING MAGAZINE FEB 2015 - APR 2015
FEB 2015 - APR 2015 DIGGING & DRILLING MAGAZINE
7
Never be afraid to have a go Although I’ve been working in mining and resources for 15 years now – following in my father’s, grandfather’s and great grandfather’s footsteps – mining was not my first career. My working life started in the Australian Defence Force when I joined the army. Twelve years in the military taught me many of the technical skills I use today. But, just as importantly, the army instilled my values of determination, commitment and of never giving up. It was during these years that I developed one of my personal mottos, “The Art of Can Do”. For me, this means trying new activities, developing new skills, pushing myself just that bit further. In other words, never being afraid to have a go. It’s what drove me to introduce a new approach to mentoring women in the mining and resources industry in the first place, a decision that has led me to pursue my own programs and also mentor women on the Women in Resources Alliance’s e-Mentoring program. Other fantastic opportunities have followed, too. The Women in Mining and Resources Leadership Summit being held this April (#WER15) being is just one example of the speaking opportunities I have been given in recent years. And I’ve been fortunate enough to be nominated for business and industry awards, including this year’s 40under40 Awards (#40under40) presented by Western Australia’s Business News. None of these outcomes were anticipated when I chose to mentor women in mining and resources. Yet, I have witnessed many times how people excel when they push themselves a little beyond their comfort zone – when they take their own “can do” approach to life. And how positive, unexpected results follow. The thrill that comes from our personal
sense of achievement cannot be overstated. When we experience success of any kind, it encourages us to seek out the same again. And that’s true not just of all the things we are told to do daily, such as exercise or eating five different vegetables, but of all sorts of physical and mental accomplishments. There are thousands of books, e-books, podcasts and articles on the topics of motivation, achievement and success. What I have learnt, however, is that success is whatever you want it to be. One person’s delight at passing their driving test, for instance, is just as valid as another’s fulfilment from climbing Mount Everest. What these people share is determination. Stepping outside our comfort zone can be confronting, daunting and hard work. There’s no way around it. So determination has to come from within. Whatever all the books say, there has to be some driver that encourages us to try that bit harder, whether it’s a carrot or stick. With all the best will in the world, those around us cannot do the hard work for us. Having a good mentor to support us is extremely valuable as are family, friends and colleagues. Supportive people who encourage us, whatever our ambitions, are worth their weight in iron ore. Yet, we have to rely on our own determination; our commitment to ourselves to make a
change, to move forward, to achieve a goal, however small it may seem in the scheme of life. Of course, obstacles pop up to get in our way all the time. Life often feels like two steps forward and one back. When it seems as if we’re not making progress, it’s crucial that we are kind to ourselves. We will get back on track, maybe not today, maybe not for a while. That’s the beauty of the “Art of Can Do”. When we have the confidence to give it a go, we discover a way to get there, even if the way ahead is not clear at first. An even more excitingly, opportunities we never knew existed are revealed along the way.
Guest Writer: Natasha (Kitty) Cann 8 DIGGING & DRILLING MAGAZINE FEB 2015 - APR 2015
Women in Energy and Resources Leadership Summit 2015 Practical Advice and Strategies for Women’s Leadership Excellence and Career Advancement in the Energy and Resources Sector
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NEWS IN BRIEF »
Oil, Gas & MINING News highlights for the QUARTER
2015 Benchmark Report positions Australia as an ideal investment destination The 2015 Benchmark Report was launched by the Minister for Trade and Investment Andrew Robb at Australia Business Week in India recently. Produced by the Australian Trade Commission (Austrade), the annual report presents key economic, financial and demographic data to highlight Australia’s competitive strengths as a major player in global trade and investment. Speaking at the inaugural Australia India Business Summit in New Delhi, Mr Robb said, ‘Behind Australia’s commercial strengths is a great economic and social story. ‘The Benchmark Report contains some of the best measures of why Australia is such a good economic partner and an ideal investment destination.’ Australia offers international investors a combination of solid economic performance, a highly skilled workforce, legal and political stability, and growing business and cultural ties to Asia. The country is entering its 24th year of uninterrupted annual economic growth and its average annual real GDP growth between 2015 and 2019 is expected to be the highest among major advanced economies. Its services sector generates more than 80 per cent of its economic output. New to the 2015 edition is a set of charts that provides snapshots of Australia’s five globally significant industries – agribusiness, education, funds management, resources and energy, and tourism. The report also highlights Australia’s advanced research and innovation capabilities; educated and multicultural workforce; trade, investment and cultural links within the fast-growing Asian region; stable, transparent and well-regulated business environment; and sophisticated financial sector. An electronic version of the report is also available, allowing content to be downloaded for use in presentations and reports. The Australia Business Week in India (ABWI) business mission is being led by the Hon Andrew Robb AO MP, Minister for Trade and Investment, from 12 to 15 January 2015. ABWI involves activities across major Indian cities including New Delhi, Mumbai, Kolkata and Chandigarh. ABWI promotes Australia as a trade, investment, education and tourism destination with programs tailored to each targeted industry sector.
DSM Expads Internatioanal Footprint with New Office in Australia Deep Sea Mooring (DSM) is expanding its international footprint with the opening of a new office in Perth, Australia. The facility, which will officially open on 8 October, will provide sales and technical support to customers across Australasia. To support its mooring operations, the company has also secured a 13,000m² yard in Karratha, 1500km north of Perth, which is a main access point to major oil and gas developments offshore Western Australia. DSM CEO, Åge Straume, says the company has confidence in Australia’s future as a key global player in the offshore oil and gas industry. “The number and size of developments offshore Australia has created a steady market for drilling rigs,” he explains, noting, “and with the local industry’s increasingly stringent standards we believe there’s now a strong foundation for long-term growth and success. “Companies operating in Australia are very QHSE oriented,” Straume adds, “so they understand the benefits of quality mooring equipment, smarter mooring solutions and performing pre-laying in order to maximise uptime. This fits our profile and our offer is tailored to meet that market demand head on.” Testament to this conviction is the 7000 tonnes of mooring equipment in transit to the Karratha yard. The company has already procured most of the equipment heading for Australia, which has a value of MUSD 30, bringing the total value of the pool up to more than MUSD 125. The equipment used in DSM’s Australian operations will be optimised for local hard-rock geological formations. Expansion into the Australian market comes off the back of a track record of success on mooring projects around the world and in particular in the North Sea, where the company honed its advanced technology and harsh environment experience. Recent DSM developments of note include project wins with Repsol and Maersk Drilling. The Australian subsidiary; Deep Sea Mooring Australia Pty Ltd., will initially employ nine people, led by Managing Director, Barry Silver, who brings over 16 years of experience in the mooring industry. “Our regional contacts report that they see a real need for increased competition in the Australian market and welcome our arrival. We bring proven expertise, innovative technology and a fresh perspective to the industry here, and we believe that’s a compelling business proposition for this exciting, dynamic marketplace,” states Managing Director Barry Silver.
Polarcus Kicks Off Capreolus Shoot Ocean Installer Expands in Australia Region As part of Ocean Installer’s global growth strategy, the company has established office in Perth, Australia to meet client demand for subsea construction services. “This is the beginning of our presence in another promising region in line with Ocean Installer’s growth strategy. The Asia Pacific- and Oceania region represent significant growth opportunities in the years ahead,” says Ocean Installer CEO Steinar Riise. Ocean Installer has recently hired Bijan K. Mahapatra to lead the office in Australia. Mr. Mahapatra has more than 30 years of experience in the offshore subsea engineering and construction industry where he has held senior leadership positions working for companies like McDermott, Bouygues Offshore, Clough Offshore, Riise Underwater Engineering and more recently with SapuraKencana. “With Ocean Installer’s experience and Mahapatra’s local knowledge and network, we are well positioned to expand our operation and business in the region.” says Riise.
10 DIGGING & DRILLING MAGAZINE FEB 2015 - APR 2015
Polarcus has started seismic acquisition on the major new Capreolus 3D multi-client project over the Phoenix area that contains the recent Phoenix South-1 oil discovery within the Roebuck Basin, offshore Western Australia. The survey is utilizing two 12-streamer Polarcus vessels, Polarcus Amani and Polarcus Asima, operating in tandem in order to maximize production. The Capreolus 3D multi-client project comprises a substantial 15,000 sq. km and has been designed by Polarcus’ in-house experts in collaboration with the project underwriters to provide a basin-wide high quality broadband 3D seismic dataset over and adjacent to the Phoenix South-1 oil discovery announced in 2014. The basin is one of the few remaining underexplored parts of Australia’s North West Shelf and considered to have the potential to become a major new oil province. The data acquisition phase is estimated at approximately eight vessel months (four calendar months), with the resultant data being processed through a pre-stack depth migration routine by DownUnder GeoSolutions in Perth. Final data products are expected to be available within Q2 2016.
WORLD Exclusive FEATURE <<ARTICLE
Oil Flows from Shellâ&#x20AC;&#x2122;s Gumusut-Kakap Project Shell has started oil production from the Gumusut-Kakap floating platform off the coast of Malaysia, the latest in a series of Shell deep-water projects.
The Gumusut-Kakap field is located in waters up to 1,200 metres (3,900 feet) deep. The platform is expected to reach an annual peak oil production of around 135,000 barrels a day, once fully ramped up. With oil production now under way, work on the gas injection facilities is continuing with an expected start-up during 2015. “We are delighted to have reached this milestone with our partners,” said Andrew Brown, Shell Upstream International Director, “GumusutKakap is our first deep-water development in Malaysia, and uses the best of Shell’s global technology and capabilities in deep water. The field is one of a series of substantial deep-water start-ups this year, driving returns and growth for shareholders.” This floating platform is the latest addition to Shell’s strong portfolio of major deep-water projects. Assembling the vast structure, whose four decks total nearly 40,000 square metres, involved the world’s heaviest onshore lift. The project uses Shell Smart Fields® technology to carefully control production from the undersea wells to achieve greater efficiency. Oil is transported to the Sabah Oil and Gas Terminal onshore at Kimanis, Malaysia via a 200 km-long pipeline. The project has allowed Shell to share deep-water expertise with Malaysian energy companies, assisting in the Malaysian government’s goal to create an offshore industry hub. The platform was built in Malaysia by Malaysian Marine and Heavy Engineering Sdn Bhd (MMHE).
contribute up to 25% of the country’s oil production.” Gumusut-Kakap is the latest of more than 20 major deepwater projects that Shell has delivered around the globe. Shell began production from the Mars B development in the Gulf of Mexico through the Olympus platform in February this year. In August it announced the start of oil production from the first well at the Bonga North West deep-water development off the Nigerian coast. In September, Shell announced the start of production from the Cardamom development, the latest deep-water breakthrough in the Gulf of Mexico which is a high-value addition to the Shell’s pioneering Auger tension-leg platform. The Gumusut-Kakap project is a joint venture between Shell (33%, operator), ConocoPhillips Sabah (33%), PETRONAS Carigali (20%), Murphy Sabah Oil (14%).
Project development On October 3, 2014, Shell announced first oil from the Gumusut-Kakap platform off the coast of Malaysia. The platform is expected to reach an annual peak oil production of around 135,000 barrels a day once fully ramped up, contributing up to 25% of the country’s oil production. Sabah Shell Petroleum Company is the operator of the development, which employs Malaysia’s first deep-water semi-submersible production system.
Shell Malaysia Chairman Iain Lo said: “Shell is pleased to be able to play an active role in developing the nation’s deep-water resources and deep-water service industry. The field comprises 19 subsea wells, with oil exported Deep-water resources are critical to Malaysia’s long-term via a 200-km long pipeline to an oil and gas terminal in energy security. The Gumusut-Kakap field is expected to Kimanis, Sabah.
12 DIGGING & DRILLING MAGAZINE NOV 2014 - JAN 2015
In 2008, development drilling began in the Gumusut-Kakap The combined weight of the production system is equivalent field. Early production started at the field in November, to 30,000 average-sized family cars. 2012. Environment and society This was ahead of engineers completing the floating production system (FPS) by linking Gumusut-Kakap’s In Malaysia, Shell continues to run major social investment production wells to the Kikeh production facility, the programmes focused on capacity building, environmental country’s first deep-water development, operated by conservation and community development. Murphy Sabah Oil. Located offshore Sabah, the Gumusut-Kakap development area is particularly rich in yellow-fin tuna. This early production was an interim measure to bring 25,000 barrels a day on stream ahead of completing the Shell and the Sabah Department of Fisheries are working FPS. together on a project to enhance fishing stocks in alternative The project has allowed Shell to share deep-water expertise areas for local fishermen. with Malaysian energy companies, assisting in the Malaysian government’s goal to create an offshore industry Shell is also leading and supporting activities to promote hub. The platform was built in Malaysia by Malaysian environmental awareness in Sarawak and Sabah; for example, through the SERASI (environmentally-friendly Marine and Heavy Engineering Sdn Bhd (MMHE). school competition) and Nature Education Camp programmes for schools.
Technology The project uses Shell Smart Fields® technology to carefully control production from the undersea wells to achieve greater efficiency.
Shell also supports research and environmental conservation efforts in Sabah’s pristine areas in Danum Valley and Maliau Basin. Other programmes focus on young people and education.
Natural gas that is produced along with the oil will be re- Shell funds hundreds of Malaysian university students injected into the reservoir to help improve oil recovery. With every year through its scholarship programme. oil production now under way, work on the gas facilities is It also supports a programme together with the Sarawak continuing with an expected start-up during 2015. Education Department that trains welders, helping to meet The project safely completed a record-breaking industry shortfalls for this skill pool. 23,000-tonne superlift in March 2012, by raising the platform’s topsides 45 metres (nearly 150 feet) above ground while the 17,500-tonne hull was moved underneath them. FEB 2015 - APR 2015 DIGGING & DRILLING MAGAZINE 13
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Drugs – the life threatening impact on those who don’t take them The challenge of drugs on mine sites is not a new concern. The remote nature and the captive audience present on a mine site make it a lucrative environment for those supplying. Securing your site as the ‘area of business’ for a dealer has enormous appeal and great potential for profit. However, the impact of drugs is devastating. Not just for the person using but for everyone and anyone who is affected by the decisions that person makes throughout the day. In addition to Health and Safety concerns there is the issue of a compromise in behaviour. If workers are willing to ‘bend’ the rules when it comes to drugs, what other rules are being broken or ignored? Once some workers begin to veer from the path, divisions begin to be created in the work force. In an enclosed, high-pressure environment like a mine site, divisions in the work force can be fatal.
Zero Tolerance to drugs on mine sites. Can it be achieved? For the last 10 years, GDA has developed highly effective strategies to reduce drugs in environments that present even greater challenges than mine sites – prisons. Before we go any further we must stress right from the start that we are in no way comparing workers on a mine site to those in custody. The similarities lie in the physical challenges only. Both prisons and mine sites have: - A captive audience due to their
remote nature - Strict security procedures in place for coming on and off site - A target audience that is traditionally risk verse
Creating a campaign that works To be effective, your campaign must cut though the plethora of OHS messages already in place. The message must be relevant to the target audience (for more information on this please see our article ‘Workplace Health and Safety’ in issue 9) and it must contain a simple action that is very easy to take. The
Achieving Zero Tolerance to drugs on site is possible. But it requires a well considered and multifaceted campaign that communicates on multiple levels throughout the organisation.
GDA – investing in your workforce safety In our next article we will look at ways to create proactive communication that is ongoing and actively helps to prevent some of the types of compromise that, if left unchecked, will allow drugs to get on site. In the last issue we offered readers of Digging and Drilling Australasia the opportunity to join us for a free workshop where we will demonstrate some of the techniques and strategies we have used to improve health and safety for our clients. This event will take place in the first quarter of 2015. To register your interest email Giles at giles@ gdadesign.com.au Places are limited to 10 people. By Lesley Kemp and Giles Dutfield www.gdadesign.com.au
traditional ‘tell your supervisor’ message will not be effective in this situation because it doesn’t connect on the right level. Because of their effectiveness, our strategies and campaigns for breaking the cycle of smuggling and using drugs in prison environments have been used across Australia, New Zealand and the UK. To be effective, a campaign must have a measurable objective. For us this was achieving a required reduction in the positives found in mandatory and voluntary drug tests over time.
16 DIGGING & DRILLING MAGAZINE FEB 2015 - APR 2015
FEATURE
<<ARTICLE
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Draugen Field
FEB 2015 - APR 2015 DIGGING & DRILLING MAGAZINE 19
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FEATURE ARTICLE» Agility, operational excellence & innovation among key challenges for Australian miners 16 January 2015: As mining companies – in Australia and around the world – continue to grapple with challenging market conditions, they need to drive productivity, embrace innovation, and get more adept at balancing short-term investor expectations with long-term business imperatives. Price volatility, geopolitical turmoil, rising costs, declining grades and a general lack of financing will make this year another one of challenges, but also opportunities, for the sector, according to Deloitte’s Tracking the Trends 2015 report.
disaster by wooing foreign investors, pooling resources and exploring alternative financing Survival of the juniors: To capitalise on shifting ownership patterns, juniors should take steps to get their assets in order and consider options such as joint ventures, sale and consolidation Seeking new skillsets: Attract new skills, commit to diversity, explore new talent management systems, get better at recruiting talent in high demand and invest in more targeted training
Riding the waves of geopolitical uncertainty: Now in its seventh year, Tracking the Trends Response strategies include lobbying for greater takes a global look at the pressing trends facing policy clarity, becoming more risk intelligent and miners in the year ahead, and offers strategies planning for myriad scenarios they can employ to adapt to changing industry Rising stakes around stakeholder engagement: dynamics. Work to build win/win platforms, communicate
The 10 trends and solutions identified for 2015 in new ways and leverage the power of social media are: Back to basics: To heighten operational excellence, re-think traditional operational processes and consider cultural approach to costs
Engaging with government: To counter regulatory uncertainty, work to build better government relationships, become more vocal and help to set the policy agenda.
Innovation is the new key to survival: Overcome According to Nicki Ivory, Deloitte Australia’s traditionally conservative tendencies by National Mining Leader, West Coast: “No one in the Australian mining sector needs to be told embedding innovation into corporate DNA that they operate in a complex environment, or The new energy paradigm: Consider a new that the imperative is to adapt to changing market approach to energy and its cost, including the conditions and produce more for less cost. use of unconventional fossil fuels and developing “But in a world where volatility has become the renewable energy facilities norm, the key to future success for Australian Dwindling project pipelines: To avert future supply miners still lies in driving operational excellence constraint risk, find a better balance between via cost containment and productivity, and truly meeting short-term investor/analyst expectations embracing innovation and technology. and maintaining project pipelines “With commodity prices where they are, Financing’s great disappearing act: While sustainable productivity improvements and a solutions are limited, juniors may be able to avert relentless focus on cost management remain
critical, and achieving sustainable operational Mining Leader, East Coast, said: “When excellence requires both a long-term commitment incremental improvements toward addressing and a willingness to embrace new cultural norms. market realities are no longer enough, the innovation imperative becomes more compelling “In an environment of zero tolerance for than ever, and this is certainly the case for underperformance, companies must rethink Australian miners. not only their traditional approaches to mining operations, technology deployment, and trading “At its most basic, innovation presents an optimal and marketing, but also their underlying cultural strategy for controlling costs. Yet it’s rapidly approach to costs.” becoming clear that innovation can do much more than reduce capital intensity. Approached Reuben Saayman, Deloitte Australia’s National strategically, it also has the power to improve FEB 2015 - APR 2015 DIGGING & DRILLING MAGAZINE 23
productivity and energy intensity, while increasing “And as operators begin to apply innovation to mining intensity. their full operational ecosystem, they stand to realise significant gains.” “The key is to think of innovation as much more than research and development around particular processes or technologies. NB: See our media releases and research at “Companies can, in fact, innovate in multiple ways, www.deloitte.com.au such as leveraging supplier knowledge around specific operational challenges, redefining their participation in the energy value chain or finding Follow us – @DeloitteNewsAU new ways to engage and partner with major stakeholders and constituencies.”
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FEATURE ARTICLE»
The Catalyst to open the floodgates of Chinese Investment being the top sources of investment in Australia at 26.7%, 22.9%, 5.3% of the total respectively. DFAT says that the levels of investment from China have grown since 2005, reaching just under $32 billion at the end of 2013, but this only puts China at number 4, being only 3.4% of the total foreign investment in Australia, if you also included investment from Hong Kong. Investment from China has only just began, and Australia needs to be better prepared and ready!
Kent Matla, Managing Director, Triangle Capital Partners - an entrepreneurial corporate advisory What does this mean for Australia’s mining firm, focused on facilitating cross-border and energy sectors? investment and commercial transactions in Most importantly the FTA provides greater connection with Asia – especially China. certainty for Australian exporters because it will I believe the Free Trade Agreement (FTA) lock-in a zero tariff on major exports like iron ore, between Australia and China will be the catalyst gold, crude petroleum oils, and LNG. Plus, the to reinvigorate significant investment flows from removal of tariffs on all resources and energy China into Australia. Not only in mining, where products, including coking coal (currently subject values are more attractive than they have been, to a 3% tariff) on the first day of the FTA, and nonbut in agriculture, property (and not just the coking coal (i.e. thermal coal, currently subject buying of houses, but development projects and to a 6% tariff) within 2 years. pre-existing buildings), and the potential for a There is also the removal of tariffs on a number of wide range of other sectors too. “transformed resources”, such as refined copper Even though there have been concerns that the and alloys; alumina; nickel mattes and oxides; FTA is not comprehensive enough, some sectors unwrought aluminium, nickel and zinc; waste are missing out, and that it is going to take a and scrap aluminium and copper; and titanium number of years to phase in, I believe what the dioxide. FTA will do as a catalyst in the short to mediumterm, could potentially outweigh the significance China will allow Australian service suppliers to provide technical consulting and field services of the FTA as a whole. in coal bed methane and shale gas extraction. According to the Department of Foreign Affairs Plus, China has also guaranteed access for & Trade (DFAT), the total value/stock of foreign consulting services related to the exploiting of oil investment in Australia was over $2.5 trillion at and gas, as well as iron, copper, and manganese the end of 2013, with the US, UK and Japan in cooperation with Chinese partners. 26 DIGGING & DRILLING MAGAZINE FEB 2015 - APR 2015
What does this mean for investment from China? China entering the World Trade Organization (WTO) back 2001, was also a catalyst. Before this had happened, many international companies were looking to expand and invest into China, but it was not always high on their priority. This all changed significantly after China’s entry into the WTO. The floodgates of investment from all over the world turned to China and it became a must invest destination in a very short period of time. China went from having around US$212 billion in foreign reserves in 2001, to now just under US$4 trillion in 2014 – an increase of just over almost 18 times in 12 years. I believe the FTA will be a similar catalyst for Australia – opening the floodgates of investment from China. This catalyst will be seen in the wider China market as a symbolic and significant stepup in the importance of the relationship between the two countries. A lower Australian dollar (AUD) will also help push investments across the line, with a discount on investments of around 10% just with the fall in
the AUD since September. If the AUD falls any further, which analysts are expecting, then the attractiveness for Chinese investors will only get stronger. Australia agreeing to join China’s proposed $US50 billion Asian Infrastructure Investment Bank (AIIB) will be another significant step in solidifying the importance of the relationship between the two countries. Australia playing an integral role in the AIIB is not only in Australia’s strategic interests, but at a business level, should create even further opportunities between the two countries. I see China as almost going through a perfect storm of cycles. The global economic cycle of slowing down (we are all feeling); China’s domestic economic cycle where its economy is maturing from being export driven to domestic consumption focused; together with China’s domestic political cycle and its change of leadership and the leadership’s strong anticorruption drive. This perfect storm of cycles has seen a slowdown of investment from China to Australia of recent – but this will all change!
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Corporate Travel Management Today for anyone with an internet connection a world of travel options is just a click away. Given this accessibility many would question the need for a travel agent. But if your business is involved in the mining, exploration and resources (MER) industries, the value of a professional corporate travel manager is much more than the price paid for your airline ticket.
REAL PEOPLE Travel can be a significant cost centre for your business and it may be tempting to save on agent’s service fees by arranging your own travel but simply booking the cheapest fare online is often a false economy – especially for those in the MER industry where things REAL SERVICE often change day to day and hour by hour. Most fares don’t accommodate these changes and changing your flights/dates can be a very costly exercise. LOCAL FOCUS According to Flightworld’s Jann Tully, you not only have access to all retail fares on offer GLOBAL REACH but often also to exclusive corporate fares – many of which have rules that are designed for business travelers who need total flexibility.
“A good agent helps the client to choose the best fare for their needs. Simply understanding the myriad of fare rules means that the agent is best placed to recommend a route and fare that is the most flexible. This can save your company a lot of time, hassle and money. Explaining the rules to your travellers succinctly is also important so that your staff understand what is and isn’t possible should they need to change their plans,” said Ms Tully. Using a corporate travel manager (CTM) to handle your travel affairs is often the best way to get preferred rates. Agents have access to a comprehensive range of travel products – air (commercial and charter), hotels, cars, ground transport, insurance – and can work with your staff to get the best deals. “Not only can a good CTM agency generate comprehensive reports on your company’s travel spend, it can analyse the figures and work with you to identify where cost savings could be made. One of the best ways is by negotiating route deals with airlines or preferred rates with hotels. But even if your company doesn’t have the volume necessary for an exclusive deal, we can often tap into a corporate deal that the agency has with a travel partner, for example American Express preferred rates,” advised the Sales and Marketing Manager. Having had to coordinate the flights of a board of directors from across the globe to a potential mine site in Africa, re-scheduling entire crews travelling to and from off-shore oil rigs because of weather changes and having to re-route senior gas engineers on-site in Azerbaijan to Alberta to deal with an emergency, Ms Tully and her team is familiar with the ever-evolving travel needs of the dynamic MER industry. This industry knowledge is an invaluable resource – not only for managing the travel requirements of global oil, gas and mining companies, but also for responding to your evolving and changing needs. “When your travel plans suddenly change, having someone on the end of the phone who knows your business and understands your priorities is imperative. Support 24/7 from senior consultants helps to minimise disruption and get travellers to their destinations as efficiently and cost-effectively as possible,” said Ms Tully. By partnering with a CTM, businesses can be assured that any travel policies they have in place are enforced. Or if your company doesn’t have a formal policy, Flightworld can help create one to cover the specific requirements of your business. Jann said “There’s a lot to be considered, from visas to safety, the best routes for your traveller comfort. And having a travel management partner that can make it all happen seamlessly is invaluable. Also, some good corporate travel agencies have a leisure travel division – so when it’s time for some R&R you can entrust your holiday to the agency that looks after your business travel”.
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Could China enter the Coal Market? Even though global coal production has swelled up, there have been no signs of production slowing down in major coal-exporting countries, stretching the already oversupplied market. Global coal oversupply has been a major contributing element to the current weak coal market conditions. According to data available with SNL Energy, coal shipments from seven major exporting countries during the JanuaryMay period were roughly 40% of the total coal export targets estimated for these nations during full 2014.
prompting some to forecast a shift in Asian importexport trends. China, which had turned into a net coal importer in the recent years, could return to being an opportunistic coal exporter within the next couple of years, as the country looks to hit its peak coal consumption in 2016, declining thereafter, Tim Buckley, director of energy finance studies at Institute of Energy Economics and Financial Analysis, told SNL Energy. Coal shipments to China, the current largest coal importer in the world, totaled 327.1 million tonnes in 2013, almost 192 million tonnes more than what was shipped in during the same period by the next big importer, India. In May, China’s coal imports were 24 million tonnes, compared to 15.6 million tonnes imported by India.
A Reuters report said global market for seaborne thermal coal will be oversupplied by roughly 10 million tonnes in 2014. Bank of America Merrill Lynch has forecasted a global surplus in metallurgical coal over the next several years despite an estimated 20 million tonnes of China still consumes 50% of the world’s thermal coal and forms 20% to 30% of all the coal import announced production cuts. demand today, making it the driver of the global The growing surplus and slowing demand is seaborne coal demand, Buckley said.
FEB 2015 - APR 2015 DIGGING & DRILLING MAGAZINE 31
On the other hand, there have been numerous Indian utilities’ surprise move comes at a time factors signaling India was still way behind in when thermal coal prices at the port of Newcastle steering the global coal export market. in Australia, considered an Asian benchmark, are hovering around $70/tonne. The international India recently got a new prime minister, who met coal benchmark also has been down, with has been focusing on revitalizing domestic contracts for the second and third quarters energy production rapidly, including of coal, settling at $120/tonne, marking the lowest level Buckley added. The Indian government recently seen in seven years. increased coal customs duty to 2.5% from 2% for importing thermal coal. For coking coal imports, Australia, the second-largest coal exporter in the the customs tax has been increased to 2.5% from world, is still seeing strong output growth from none previously. Also, a tax has been doubled on domestic coal producers. Major new expansions all coal consumption to 100 Indian rupees/tonne in Australia, expected to come online in 2014to fund the country’s energy goals, Buckley said. 2015, have been crossing out any advantage In addition, there have been already calls from raised due to production cutbacks and active climate experts and environmentalists pressing closures of mines, according to Buckley. Mines India for the use of renewable and nuclear energy expansions from Peabody Energy Corp., BHP sources in order to satisfy the country’s power Billiton Ltd., Anglo American Plc, Whitehaven needs, a news report suggested. Coal Ltd. and Cockatoo Coal Ltd. “will add 30 [million tonnes per year] of new supply, [against] Another factor that may slow down Indian imports the 4 [million tonnes per year] of closures recently is domestic electric utilities, the largest consumers announced by Vale SA and Glencore Plc in of imported coal in India, were not stepping up Australia,” Buckley added. coal purchases despite global prices hovering at multiyear lows. A report from The Economic Take-or-pay contracts were also deterring Times said Indian utilities were unwilling to pay Australian coal producers to limit output, for costly power generated by plants running on worsening the supply glut situation. “These long imported coal. term contractual obligations are often US$15-
32 DIGGING & DRILLING MAGAZINE FEB 2015 - APR 2015
30/t[onne] spanning 5-10 years and amount to hundreds of millions of dollars of contingent liabilities should a mine close,” Buckley said. Coal exports from the major ports in Australia reached 18.3 million tonnes in May. Australia’s Bureau of Energy and Economics had put the country’s total coal exports target at 364 million tonnes in 2014.
May, up from 35.7 million tonnes shipped in April, data from Bank Indonesia showed. Indonesian coal producers have continued to boost their output, with production reaching 213 million tonnes of coal in the first six months of 2014, a news report said. However, the country has introduced rules to prevent exploitation of its coal reserves and retain the fuel for domestic purposes. Among the measures include capping annual coal production, as well requiring companies to register themselves with the government in order to export coal out of the country.
South Korea is one of the largest buyers of Australian coal, playing a major role in the Asian import coal market alongside China, India and Japan. South Korea’s coal imports are expected to touch 98 million tonnes in 2014, up 2.1% from 2013 levels, BREE said. The country has started imposing taxes on thermal coal imports from July, but, according to BREE, the law may not affect Indonesia’s domestic thermal coal consumption is expected to reach 151 million tonnes by 2022, its coal appetite. according to a report. “South Korea will provide a big boost to the [coal] demand-side. From now until 2017 it is adding Besides Australia and Indonesia, Colombia around 12 GW of new coal-fired capacity, with and South Africa have been a major force in the bulk of the additions scheduled for 2016. aggravating the global oversupply situation. This will boost seaborne [coal] imports by 25-30 Colombia increased its 2014 annual coal [million tonnes], and beyond that there are plans production forecast to between 94 million and 97 for even more coal capacity additions,” Stefan million tonnes, up from the previously estimated Ljubisavljevic, an analyst at Macquarie Securities, 89 million tonnes. This comes even though told SNL Energy. the coal operations saw several disruptions, Another Asian coal buyer, Japan, saw its coal imports reach 13.5 million tonnes in May, according to data from Trade Statistics of Japan. While Japan traditionally has been a massive importer of Australian coal, another major coal exporter, Indonesia, has been betting on coal demand growth from Japan amid collapsing Chinese demand.
including labor strikes. Thermal coal exports from the country are set to touch 84 million tonnes in 2014, compared to 77 million tonnes in 2013, which would pile up additional volumes in the global market.
Colombia exported 12.5 million tonnes of coal in May, more than double from 5.4 million tonnes it shipped out in the previous month, according Indonesia exported 36.5 million tonnes of coal in to Colombia’s statistics agency DANE. Colombia
exports most of its coal to Europe.
Canada shipped out 3.5 million tonnes of coal in May, up from 2.7 million tonnes in April, according to data from a government statistics agency. South Korea was the largest receiver of Canadian coal, importing roughly 1 million tonnes of coal in May, while Japan imported 740,557 tonnes of coal in the same month, the data showed.
Seaborne coal imports into Europe are expected to drift down over the next five years as the European Union policy on emissions, starting with the U.K., pushes coal off the grid, Ljubisavljevic said. “Currently, strong renewables generation and falling gas prices are also pressurizing European coal demand,” he added. Russia’s coal exports in May reached 13.6 million tonnes, up 13.5% from the year-ago Coal shipments to Germany, one of the largest levels, according to Port News. In the five months coal importers in Europe, totaled 17.9 million through May, Russia’s coal exports totaled 62 tonnes in the January-April period, up 5.5% over million tonnes, up 15.5% from the prior-year the year-ago period, according to data from a period, the report said. German coal importer association. Coal exports from the U.S. to Germany in the period totaled Russia’s largest terminal of Vostochny, in the 3.8 million tonnes. far east of the country, saw a 20% year-overyear surge in coal shipments in May, to nearly 2 Another country that is boosting exports is South million tonnes, according to data from Russia’s Africa, which shipped out 5.6 million tonnes of Association of Commercial Sea Ports. According coal in May, up from 5.5 million tonnes in April. to BREE’s earlier estimates, Russia may export The coal was exported from South Africa’s a total of 106 million tonnes of coal in 2014, and largest coal terminal, Richards Bay. About is well on its way to meeting that goal. 69% of coal shipped in May went to Asia, while Europe accounted 24% of the total coal exports, An expansion initiative for a planned coal according to the data. terminal in Russia by debt-laden Mechel OAO was shelved by the company. The expansion, U.S.-based coal producers have been particularly a report claims, would have created additional impacted by the oversupply situation and have difficulties for Mechel, which has outstanding curbed output in response to the low pricing debts of over US$8 billion. environment. According to an analyst at Bank of America Merrill Lynch, U.S. coal exporters may not return to the seaborne market at current Author: SNL Energy prices given their cash costs at the mine.
34 DIGGING & DRILLING MAGAZINE FEB 2015 - APR 2015
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