Australia’s e-waste problem solved with new technology New opportunity to support resources growth Oil giants move into the offshore wind sector
july 2016
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n the recent Federal election,
Ministers Michaelia Cash (Minister for Women, Minister for Employment), Josh Frydenberg (Minister for Environment and Energy) and Matthew Canavan (Minister for Resources and Northern Australia) were reappointed or appointed to portfolios imperative to the future of Australia’s resource sector. Senator Cash took on the employment portfolio almost one year ago and successfully secured the passage of the first amendments to Australia’s workplace relations laws in more than three years. The minister has also made appointments to the Fair Work Commission (FWC); simultaneously improving the proportion of women in the tribunal to one-in-three commissioners. As Minister for Women, Ms Cash has also supported gender diversity in the resource industry such as AMMA’s Australian Women in Resources Alliance (AWRA). Former Minister for Resources, Minister Frydenberg is considered to be a proactive and consultative minister who understands the importance of a diverse energy mix to Australia’s future prosperity according to the resources sector and industry groups, but the grouping of the Environment and Energy portfolios has also been met by some criticism from environmental groups. The Queensland Resources Council (QRC) said in a statement that the sector has won the trifecta with the appointment of Matt Canavan, Greg Hunt and Josh Frydenberg. “The resources sector requires steady safe hands to ride through the commodities downturn and in the face of a relentless green activist campaign,” the statement said. QRC went on to say that the resources sector should be an integral part of rolling out the Turnbull Government’s jobs and growth election platform. “In Queensland alone, the resources sector indirectly and directly accounts for one in every five dollars in the economy and one in every six jobs.” Whereas the results of the voting has been realised by the appointment of the new ministry, we are yet to see what the significance the election will have on the future of the industry.
Volume 5, Issue 45, JUly 2016 Published by Sage Media Group ABN 56 155 835 555 Director/CEO Noman Kabir Director/Publisher Cordelia D’Souza Group Editor Annelie Wressmark Contributors Reg Howard-Smith Steve Knott Andrew McLean Lewis Page Mark O’Donoghue Ivo Bozon Dumitru Dediu Kerry Chamberlain Simon Currie Michael Tooma Nicholas Beech Research and Development Shah Talukder Business International Art Director Karolina Larsson Communications Manager Peter Harris Graphic Design and Production Ellen Johnson Group Sales Manager Joel Prentice National Agency Manager Peter Stevens IT Support Zayd Bhyat Accountant M.H.Morshed Subscription Manager and Administration Amber Arnold
Annelie Wressmark Editor
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8/4 Queen Street Bentley WA 6102 Australia P 08 6336 6430 F 08 9458 1136 www.nationalresourcesreview.com.au info@sagemedia.com.au editor@sagemedia.com.au Disclaimer: National Resources Review is subject to copyright and cannot be reproduced in whole or part in any print or electronic form without the consent of the Editor. Although every effort has been made to ensure that the information is correct, no responsibility is accepted by the Publisher for any entry supplied by individuals, organisations or companies.
2 july 2016
cover story 12 Australia’s e-waste problem solved with new technology
features 18 New opportunity to support resources growth
34 Reform to improve Australian hazardous waste management
With the 2016 federal election behind us, all parliamentarians must now work together to support greater competitiveness and growth in the resource industry.
Australia produces approximately six million tonnes of hazardous waste a year which constitutes more than 10% of the national waste generation.
24 CEO talks about pipelines, the gas market dynamics and the energy debate Mick McCormack from APA Group says the gas industry is critical to the Australian economy, and the pipeline sector is critical to the gas industry.
30 Low-viscosity lubricants – why the right oil matters Technologies that can cost-effectively improve the fuel efficiency are readily available on the market today.
42 Lessons learned from recent oil spills Oil spills are an inherent risk associated with offshore petroleum activities. While these events are very unlikely, they pose a threat to the marine environment.
48 Safety and the Internet of Things More companies are using the power of the Internet of Things (IoT) to keep workers safe on site.
50 Shotcrete testing promotes mine safety and productivity The ability of shotcrete to form on most shapes and its ability to bond to uneven surfaces make it a highly versatile material that provides safe and economic benefits.
56 Leasing - an essential financing tool for a dynamic economy Equipment finance in Australia consists of three broad product groupings; leasing (both finance and operating leases), hire purchase and chattel mortgage.
60 Oil giants move into the offshore wind sector Fresh wind power commitments by oil majors have prompted more oil sector suppliers to seek cross-sector synergies in vessel and equipment delivery.
regular 6 News
44 Skilled
62 Innovation
14 Events
46 Safety
64 Opinion
18 High Profile
52 Finance
34 Environment
60 Going Global
july 2016 3
upcoming
EVE NTS Brisbane Smart Mining Event Ahead of MINExpo, a delegation from Nevada is visiting Australia, keen to explore the use of new technology in the mining sector, discuss and explore the environmental impact of mining, particularly in relation to water, learn from Australia’s success in gender diversity and discuss the social impact and licence for mining as it relates to the environment, communities, minorities and indigenous people.
5 Aug 2016 Pullman Brisbane King George Square, QLD austmine.com.au/Events/EventId/160/e/ newmont-and-nevada-miningdelegation-brisbane-smart-miningevent-5-aug-2016#sthash.zVwGleyv. dpuf
Innovation in Mine operations This event will include discussions in regards to innovation and technological developments in underground and open pit mine operations. It will allow delegates to share knowledge and experiences, and to interact with professionals from around the globe, with an extensive background in areas such as sampling and geostatistics, mine planning, geomechanics and geotechnics, joint mine
4 july 2016
operations and the optimisation of mine processes.
21-23 August 2016 Hotel Grand Hyatt Santiago, Chile gecamin.com/minin
International Mine Management This event will bring together mining professionals and provides a forum for the discussion of the key management issues facing the minerals industry today. This is an opportunity to gain a deeper appreciation for the changing dynamics in the minerals industry worldwide with discussions of technology and innovation to increase productivity, improve safety and reduce capital and operating costs.
22-24 August 2016 Sofitel Brisbane, QLD immconference.ausimm.com.au
The Mining Resources Convention With back-to-back presentations from key resource industry experts and participants, this two day event has previously secured delegations in excess of 1,500. Now incorporating the Australian Copper Conference, with 80+ booths set to fill the bustling exhibition area and ample networking opportunities at its attendants’ finger tips, this year’s event is sure to be another great success.
24-25 August 2016 Pullman Brisbane, QLD verticalevents.com.au/mining2016/
International Geological Congress South Africa will be hosting the 35th ‘World Cup of Geosciences’ in 2016, the prestigious International Geological Congress (IGC). The core topics for the Congress are Geoscience for Society, Fundamental Geoscience and Geoscience in the Economy. A total of 49 themes covering all disciplines in the geosciences will form the basis of the technical programme.
27 August-4 September 2016 Cape Town International Convention Centre, South Africa 35igc.org
Health, Safety, Environment and Community Conference This event brings together leading policy experts and decision makers to talk about the operational and regulatory challenges and issues in these key areas for mining and exploration businesses. It will cover the topics that matter to a range of operations experts and specialists, from risk, communications and safety through to minimising environmental challenges and strong community engagement.
29-30 August 2016 Crowne Plaza Hunter Valley, NSW nswmining.com.au/events/health,safety,-environment-communityconference
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NEWS
Australian LNG exports surge to 3.6 million tonnes in June Australian LNG exports increased by 0.56 million tonnes (Mt) in June, reaching 3.6 Mt, up 18.5% on May 2016 exports, according to the June Monthly LNG Report recently released by independent energy analyst, EnergyQuest. “The strong growth in June exports reflects a full month of production from the Woodsideoperated North West Shelf, which underwent planned maintenance in May, together with particularly strong performance from Woodside’s Pluto project and Shell’s QCLNG project in Gladstone,” said EnergyQuest CEO Dr Graeme Bethune. He said despite low oil and LNG prices, Australia’s six LNG projects all maintained high levels of production in June, in many cases above nameplate capacity. “We expect further growth in LNG exports over the next six months as the second trains of the GLNG and APLNG projects come into production
6 july 2016
and the Chevron-operated Gorgon project begins to ramp-up.”
Remarkable Queensland achievement Queensland, which exported 1.4 Mt (22 cargoes) in June, is catching up with Western Australia, which exported 1.8 Mt (27 cargoes) in June. “The growth in Queensland exports is quite remarkable given that its first LNG project only started exporting 18 months ago,” said Dr Bethune. The Northern Territory exported 0.3 Mt of LNG (five cargoes) from the Darwin LNG project in June. Northern Territory exports will start growing from late next year when the INPEX Ichthys project starts production.
Australian cargo EnergyQuest estimates that 44 cargoes were delivered from Australian projects in June, mostly to traditional north Asian
customers (22 to Japan, 15 to China, two to Korea and one to Taiwan) but there were also two cargoes each to India and to Egypt.
Indian and Chinese LNG markets growing but continuing weakness in Japan and Korea Total Indian LNG imports from all countries were up by 0.45 Mt in May, 40% up on May 2015, according to the latest market data available, continuing the strong growth seen all year (+2.2 Mt, +41% in the first five months of 2016). Chinese imports grew by 27% in May compared with a year earlier. Total Japanese and Korean LNG imports continue to fall, down 4% and 5.8% respectively in May 2016 compared with May 2015.
US LNG exports focussed on the Atlantic The new Sabine Pass LNG
project on the US Gulf Coast shipped five commissioning cargoes in June. Most Sabine Pass cargoes are going to countries in South America, with no cargoes yet to North Asia and only one cargo to Europe (Portugal), but with a second European-bound cargo now heading to Spain. Sabine Pass continues to ramp up at about the same rate as APLNG. The first commercial delivery under the Shell/ BG contract commences in November.
Australian domestic gas markets Short-term east coast gas prices spiked in June reflecting cold weather in the south and ramp-up of LNG projects in the north. LNG netbacks were below domestic gas prices. However the three LNG projects continued to operate at high levels, consuming 87 petajoules (PJ) of conventional and coal seam gas during the month.
NEWS
Overhaul tackles coal workers’ health Tougher coal dust controls, new and better testing, and better trained medicos has been announced by the Natural Resources and Mines Minister Dr Anthony Lynham to protect the health of Queensland’s 5500 underground coal miners. 11 Queensland miners have been diagnosed with coal workers’ pneumoconiosis, which is caused by long-term exposure to high concentrations of coal dust. The measures that employers, unions, government and doctors have now developed together, with Monash University and international expertise, will deliver the best-practice prevention, monitoring and screening system. The three key action areas are: 1. Prevention, including stricter dust management and publishing dust levels regularly.
2. Early detection through better screening– with strong support from the state’s underground coal mine companies and doctors. “A miner with the first stages of coal workers’ pneumoconiosis may have no symptoms, but should not continue to work in a dusty environment, so the disease doesn’t progress,” Dr Lynham said. Early detection through an effective screening program is critical to protecting the current workforce. All underground coal mines are offering their workers new checks on current x-rays or fresh x-rays if it was taken more than two years ago. Also, intensive training will be developed for the general practitioners who conduct the health assessments coal miners undergo regularly.
There will also be a focus on the lung function tests that miners do as part of their health assessments. Miners’ medical data will be captured and stored digitally and doctors will be required to report cases to government. Dr Lynham said he would also continue to lobby the Federal Government to establish a national screening program that includes retired coal miners. 3. Safety net for miners with coal workers’ pneumoconiosis. Miners diagnosed with coal workers’ pneumoconiosis can rely on the workers’ compensation safety net, available via WorkCover Queensland or their employer’s
own insurance scheme. Dr Lynham said the plan addressed key areas of concern identified by an independent Monash university review. It continues the work he announced in a five-point action plan in January. The review checked 257 long-term coal workers’ X-rays, and of those, 18 miners have been recommended to undergo extra tests. “My Department of Natural Resources and Mines is making contact with these miners’ medical advisers so the doctors can advise the miners to have a further test. I urge any coal mine worker who has concerns about their health to talk to their general practitioner.”
Energy Queensland launch starts new energy future Energy Queensland was recently launched, a single entity which unites customers from the Torres Strait to Tweed Heads in Queensland through the merger of Ergon Energy and Energex. Treasurer Curtis Pitt said Energy Queensland has been
8 july 2016
created to deliver better outcomes for customers, for employees and for communities and prepare the state’s electricity network for demands of the future in a transitioning energy sector. “Energy Queensland will have an asset base of over $24 billion and will serve more than 4.8 million people following a staged transition process.” “This is more than simply bringing organisations together – today we establish the means of ensuring that the electricity grid that underpins our economy will remain at the core of how customers choose to use electricity,” Mr Bailey said.
Minister Assisting the Premier on North Queensland and Member for Mundingburra Coralee O’Rourke said the merger will bring more jobs to North Queensland. “Energy Queensland will support the development of regional Queensland and will have a clear focus on providing regional Queenslanders with access to the innovative new products and services available in other parts of Australia.” The existing boards of Ergon and Energex will remain in place until 30 September to leverage their knowledge of the businesses and allow a smooth transition.
The energy services business will initially focus on providing access to renewables and storage through the grid for a broader range of customers; using renewable energy supply options to reduce expensive diesel costs in remote communities; and options to enable Queenslanders to take control of their electricity needs through the introduction of tools and systems including smart meters. Energex is also carrying out a Battery Storage Trial at Rocklea that is providing Energex with real time data to better understand how best to integrate new technologies into the network.
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NEWS
Floating solar
to gain global attractiveness According to a study by BMI Research floating solar power will grow increasingly attractive globally, as it allows developers and investors to overcome limitations in land usage that are associated with large, utilityscale solar projects. Power markets in hotter climates will also deploy the technology in order to prevent water reservoir evaporation and improve solar power efficiency through waterbased cooling. There has been a boom in solar power capacity growth over the last five years - as attractive subsidy schemes have stimulated solar sector expansion in key growth markets such as the UK and Japan. Taking into consideration the limitations on land use in these countries, and the
substantial amount of space required to deploy utility-scale solar facilities, finding new space for utility-scale solar installations has become increasingly problematic. The result has been that developers in both countries have increased their efforts to develop floating solar plants, which do not conflict with other potential uses of land. The UK has deployed floating capacity on reservoirs in Manchester and by Heathrow Airport - where the solar plant electrifies reservoir operations on site. Japan will also increasingly look to the technology in order to boost solar power while much of its nuclear capacity is still offline. Given a huge upsurge in solar capacity in the country since end-2010,
whereby total sector capacity increased ninefold, finding space for new projects has become problematic. The Japan Photovoltaic Energy Association expects cumulative Japanese PV solar capacity to reach 100GW by 2030. Given the planned commissioning of the 13.7MW Yamakura Dam Reservoir floating solar plant in 2016, the technology will be a component of such plans. In India, floating solar power plans centre on covering hydropower plant (HPP) reservoirs with solar panels, whilst utilising existing HPP grid connections to transmit the electricity that is generated. India’s hydropower output has been very volatile over the last decade, and large scale floating solar facilities would help prevent water evaporation during particularly hot seasons. The National Hydro Power
Corporation (NHPC) announced in June 2016 that it aims to develop a 600MW floating solar project by India’s largest operational hydropower project, the Koyna HPP (1,960MW). This is on the back of similar plans for a 72MW facility in Kerala and 50MW projects in Maharastra and Uttar Pradesh. Brazil is also looking to deploy floating solar capacity at some of its hydropower facilities. The country has been badly hit by drought between 2014 and 2016, emphasising the need to conserve water. While the country has already deployed pilot schemes, it holds much more ambitious plans for the next decade. In March 2016, the country announced plans to develop 350MW of floating solar capacity at the 250MW Balbina HPP at a cost between USD68-77/MWh.
Mining companies must act to better manage volatility Mining companies must move faster to generate cash and strengthen their balance sheets if they are to successfully navigate ongoing volatility, says EY Global Mining & Metals Advisory Leader Paul Mitchell. Mitchell’s comments follow the release of EY’s latest report, Navigating volatility: do you change your business or the way your business works?, which identifies six key areas mining and metals companies should focus on to strengthen their business and manage ongoing volatility – cost reduction, working capital, productivity, capital effectiveness, portfolio strategy, and financing. “Volatility will be a challenge for the mining and metals sector for the foreseeable
10 july 2016
future and BREXIT has brought additional uncertainty to this, with questions on how it may impact an already slow growth in global economy. Locally, the Australian Federal election has potentially provided further uncertainty,” says Mitchell. “Too many companies have viewed cost reduction measures and productivity initiatives as a once-off, when what they need to be doing is embedding continuous improvement in their DNA.” Mitchell says mining companies need to challenge themselves on best practice in order to find the next 10-20% of productivity savings, and they must learn from other sectors, particularly manufacturing, airlines and industrial products. “Mining companies have
generally been too slow to consider how they can apply best practice processes from other sectors. Consumer products companies have historically had lower margins so capital and cost efficiency has always been a focus – there are examples of some companies who have embedded process improvements that have enabled year-on-year savings of US$1.2b over the past three years,” he says. “Miners can no longer rely on conventional wisdom and expertise from within the sector, they must cast the net wider and seek outsiders’ experience to get that next productivity and efficiency boost.” Despite some improvements across the sector, the report notes that working capital is
another area that remains ripe for improvement, with aggregate levels of working capital in the sector of more than US$200b. It points to processes and systems across the supply chain as the biggest area for miners to make gains. Releasing cash from working capital will require cultural change and data analytics. Both areas also have a critical role to play in improving productivity – particularly when obvious opportunities across operations have already been addressed. Image by Jeramey Lende
july 2016 11
COVER STORY
Australia’s e-waste problem solved with new technology
I
n Australia, electronic waste (e-waste) is growing three times faster than the rate of general domestic waste. To combat this problem, mandatory federal legislation, and the Product Stewardship Scheme have been introduced to increase e-waste recycling across Australia. The Product Stewardship Act 2011 provides the agenda to effectively manage the environmental, health and safety impacts of products, and in particular those impacts associated with the disposal of products. Furthermore, the National Television and Computer Recycling Scheme sets out a requirement to achieve a progressively higher rate of recycling of e-waste from 50% in 2015/16 to 80% by 2021/2022. As a result, in January this year Australia’s first LCD automated electronic waste processing system, the BluBox, was launched in South-East Melbourne. This new technology has already significantly improved Australia’s e-waste processing capabilities, with a capability to segregate products automatically from across the country. “This Australian-first technology represents a significant advancement in how we process e-waste, demonstrating our commitment to keeping these materials out of landfill,” Former Minister for Environment, Climate Change and Water, Lisa Neville said. The BluBox was developed in Switzerland and Toxfree, one of Australia’s leading environment, waste management and industrial service providers, has an exclusive licence agreement to use the technology in Australia and New Zealand. The Victorian Government invested $470,000 towards the purchase and installation of the state-of-the-art machine capable of processing large quantities of e-waste in a faster, more efficient way.
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The new technology is able to process 2500 tonnes of e-waste each year, recycling more than one tonne of e-waste per hour. It produces saleable commodities through resource recovery which can be used by local manufacturers to create new products including mercury, glass, ferrous, PMMA, PCBs and plastics. CRT TVs and monitors have traditionally been the most common e-waste received for recycling, however the market has shifted in the last decade. Disposal of CRTs are gradually declining and are being replaced by the increased growth in disposal of LCD displays. Since 2007, sales of LCDs have exceeded CRT displays according to the NPD Display Search Quarterly Advanced Global TV Shipment and Forecast Report. Because of this, the responsibility of recycling LCD screens is a growing emerging problem. A major issue with flat panel manual dismantling is that it’s very labour intensive and can lead to environmental, health and safety hazards as a result of the breakage of the mercury vapour tubes found in LCDs. “This is due to the backlighting tubes which contain hazardous mercury vapour and solid. For manual dismantling a high degree of control needs to be in place otherwise there is a high risk of exposure
to both personnel and the environment,” says Toxfree. Toxfree invested in the BluBox technology as it provided a recycling solution which is safe, environmentally responsible and productive. The BluBox breaks down and separates components of e-waste to be recycled. The process captures the mercury vapour and mercury solid found in LCD screens. “In comparison to manual dismantling which takes us one hour to recycle up to two LCD screens, the Blubox can recycle an estimated 300 LCD screens in the same one hour timespan.” The LCDs are fed into the top of the Blubox and then goes through a shredding and separation processes to output clean commodity fractions which are mercury free e.g. (ferrous metals, mixed plastics, precious metals). The outputs are then subjected to further downstream value adding recycling processes. The entire technology is packed in a 40ft HC container, which is constantly working under negative pressure to ensure highest safety standards.
Toxfree’s e-waste strategy
reuse and recycling of lead bearing CRT glass. Minimum trans-boundary movements and CO emissions. 2 Toxfree can recycle whole tubes, damaged tubes and mixed crushed CRT glass.
Commodity Purchase Toxfree purchase all e-waste components and commodities, including plastics, PCBs, CPUs and non-ferrous metals.
Recycling Event Management Since 2008 Toxfree have conducted scores of e-waste recycling events across Australia, from large inner city metropolitan councils to tailored solutions for business.
Recycling target Toxfree has set a target of a minimum 90% recycling rate (with a general average of around 92%-96% depending on the materials to be recycled), reducing a company’s carbon footprint by producing renewable resources.
CRT Recycling
Highest standard
Toxfree owns an innovative CRT treatment process, resulting in 100%
Toxfree are committed to the highest international standards of recycling, handling and environmental management of hazardous waste. To demonstrate their commitment, Toxfree has attained ISO 9001:2008 and ISO 14001:2004 certification from the “International Organisation for Standardisation”. In addition, their operations and integrated management systems are designed to comply with the industry recycling standard for electrical and electronic equipment AS/NSZ 5377, as well as the safety management requirements of AS 4801, and is based on the ‘plan-do-check-act’ cycle of continuous improvement.
july 2016 13
EVENTS
Regulations ensure NT oil and gas development is environmentally sustainable
U
nconventional gas mining covers a wide variety of oil and gas deposits and extraction processes such as coal seam gas, shale and tight gas. In the Northern Territory, known unconventional gas deposits are in deep shales, typically more than one kilometre deep. The Northern Territory Government has been made aware of community concerns about some of the practices used to extract this unconventional gas, and hydraulic fracturing, or fracking, is one such practice. In response to that, the Government commissioned Dr Allan Hawke AC to undertake a public inquiry into the regulation of hydraulic fracturing. After considering public submissions
14 july 2016
and detailed academic studies, Dr Hawke found there was no case for a moratorium on hydraulic fracturing if a robust regulatory regime was put into place. However, Dr Hawke’s review of the environmental impact assessment and approval framework confirmed that the Territory’s environmental regulatory framework needed reform to meet modern challenges and community expectations. As a result, the government accepted this report, and each of Dr Hawke’s recommendations contained within it. Since then, the Department of Mines and Energy has been running a three stage process of overhauling the regulatory framework to provide better
transparency and clarity for Territorians and the industry. Firstly, guiding principles were released to clearly articulate the expectations of industry. All activity is now assessed against the principles prior to approvals being granted. The second step is the environmental Regulations themselves and the final step is reform of the Petroleum Act. The Petroleum (Environment) Regulations, which came into effect on 6 July incorporate best practice from other Australian and international jurisdictions and deliver on relevant recommendations and findings by Dr Hawke about the introduction of a best-practice regulatory framework for the NT.
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EVENTS The Regulations will form an important part of the regulatory framework for the onshore oil and gas industry and are key to ensuring environmental protection in the state. Mines and Energy Minister David Tollner said the plan must demonstrate that all environmental risks and impacts are identified and reduced to an acceptable level and a level that is as low as reasonably practicable. “The new Petroleum (Environment) Regulations will ensure the Territory’s environment is protected and that any onshore oil and gas activity can only occur if it is ecologically sustainable for the Northern Territory,” he said. Approved Environment Management Plans will become public and legally binding documents, meaning that companies must fully comply with their approved plans. Chief Executive Officer of the Department of Mines and Energy, Mr Ron Kelly, in his presentation to the Inquiry into Unconventional Gas Mining on 12 April 2016 said the Department of Mines and Energy had taken into account the adoption of new regulations by the Commonwealth for offshore waters, as well as South Australia and Western Australia for onshore exploration and development. “Specifically, the regulations adopt an objective based approach, rather than a prescriptive approach. The regulator will no longer develop a long list of prescriptive measures that a company ticks off when seeking approval for their project. Instead the company must demonstrate that they have considered and assessed all risks and have appropriate practices developed. This drives continual best practice improvement rather than complying with minimum standards, which may not address specific risks of individual sites,” he said. The Regulations encapsulate the following key points: • Interest holders must not conduct a petroleum activity unless there is an approved environment plan in place. • The plan must identify all 16 july 2016
•
•
• •
environmental risks associated with the activity and demonstrate that all risks are reduced to a level that is as low as reasonably practicable and acceptable. They incorporate the Principles of Ecologically Sustainable Development. Baseline testing and through life monitoring regimes must be designed and approved by the regulator. The plan must involve stakeholder engagement during development. An approved Environmental Management Plan becomes a public document.
The benefits of objective-based regulation are that: • Oil and gas companies will be held accountable for the environmental outcomes and with compliance of their approved implementation plans. • Oil and gas companies are free to choose the best methods to achieve the agreed outcomes, but must provide supporting evidence to satisfy the government that the outcomes will be achieved. This stimulates innovation and continual improvements within the industry.
Regulation application An example of how this regulatory regime is applied could be with the protection of surface water and groundwater which are of paramount importance. Mr Kelly said that in relation to groundwater, one of the critical risks is the integrity of the well that passes through the aquifers. “We require companies to demonstrate that they have designed and implemented construction, testing and monitoring techniques that will ensure aquifers are not placed at risk before approval to construct is granted – and they will be monitored and audited to ensure they are complying with these approved plans.” Water acquisition and the current exemption for mining and petroleum activities from licence and permit obligations under the Water Act has also
Mines and Energy Minister David Tollner said the plan must demonstrate that all environmental risks and impacts are identified and reduced to an acceptable level and a level that is as low as reasonably practicable.
been raised as a concern. In November last year, the Northern Territory Government announced the removal of this exemption. “The Departments of Land Resource Management and my Department are currently working together on legislative amendments to remove the exemption. In addition all approved environment plans and statements of reasons will be made public, introducing a new level of transparency that will allow Territorians to be appropriately informed about industry activities,” Mr Kelly said. He said the Government further acknowledges that there may be instances where the risks of the project may be well managed but it is simply not acceptable for environmental, social or cultural reasons that the project proceeds. “In this context, the regulations dovetail with both the department’s land access policy and its inclusion zones policy. We have effectively ruled out exploration for onshore oil and gas in a range of areas, such as residential and rural residential areas. This is part of the requirement for the industry to demonstrate that it achieves its social licence to operate.”
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july 2016 17
HIGH PROFILE
With the 2016 federal election behind us, all parliamentarians must now work together to support greater competitiveness and growth in the resource industry, writes Steve Knott, chief executive of Australia’s resource industry employer group AMMA.
New opportunity
to support resources growth
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By Steve Knott, chief executive of Australia’s resource industry employer group AMMA.
18 july 2016
ow that Australia’s newly elected parliamentarians have settled in, here’s hoping the coming months will involve genuine discussion on policies and initiatives to support resource industry growth. This will be a welcome contrast to what we heard during the election campaign, which was an almost daily mantra from our politicians about Australia’s economy transiting away from mining. While there are no arguments that a
strong economy relies on a diversity of prosperous industries, the reality is the resource industry holds vast potential to deliver enormous economic and employment benefits into the foreseeable future. The industry may no longer be experiencing an ‘investment boom’, but mining will continue to do a great deal of heavy lifting for our economy thanks to a boost in production levels as many new major projects start up.
This period of investment is already paying off. In 2014/15, mining made the highest contribution of any sector to our overall GDP at $118.3 billion, while Australia’s total resource exports are about $172bn and are forecast to grow to $232bn by 2020-21. According to the government’s latest corporate tax transparency report, miners contribute more tax to the Australian community than any other industry, at just over $12bn in 2013/14. This revenue is building the schools, hospitals and infrastructure that keep our communities thriving. There’s no reason why we shouldn’t attract even more investment in both traditional and renewable resources to ensure we have a strong pipeline of projects to help underpin the prosperity of future generations of Australians.
In commodities, we are ranked first in the world for uranium reserves, fifth for thermal coal, sixth for shale oil and seventh for shale gas reserves. For emerging energy markets, our sun, wind and vast landscape offer unique opportunities to become a world powerhouse in renewables technology. Bringing these opportunities to fruition will rely on our national leaders delivering the right policy foundations led by a competitive corporate tax rate, streamlined approvals processes and incentives to reboot below trend exploration activity. It’s also necessary to address the growing misconception that the mining industry is no longer a major driver of jobs. In 2013 the Reserve Bank estimated the resource industry created and supported over one million jobs in Australia. While that figure has no doubt contracted in recent years due to a shift from labour-intensive construction to longterm production, using the established modelling that one job in mining creates three jobs in the supporting supply chain, our resource industry is still responsible for more than 600,000 well paid jobs in Australia. Just as important is the type of roles now being created by Australia’s resource industry. Australia’s Mining Equipment, Technology and Services (METS) sector has grown into a $90bn industry and is seen as the leading innovator and exporter of mining technology globally. This has driven a ‘new breed of miner’, where traditional manual labour is making way for highly skilled roles across remote operating centres, automation, robotics, fibre-optic sensors and other innovative, high-tech developments. This leads to another area where resource employers want more substantial discussion and action during the next term of government – workplace relations reform. A recent survey of over 100 resource employers employing more than 85,000 employees revealed that 76% believe our workplace laws make it difficult for them to respond to changing market conditions, while just 6.3% consider the system supports investment confidence. Prior to the election, we saw scarce
detail on proposed workplace relations policy with neither side of politics identifying how it would fix serious problems experienced by users of the Fair Work Act. Neither the Coalition nor Labor released any response to the Productivity Commission’s December 2015 recommendations for reform of Australia’s workplace relations framework. AMMA’s ongoing campaign for ‘five workplace relations reforms over five years’ calls on the Australian Government to address major problems in our employment laws that are creating barriers to investment in the next wave of major resource project development and employment. These reforms are supported by KPMG research which indicates that fixing a few key problem areas with our employment laws alone could add up to $30.9 billion to the economy and create 36,000 resource industry jobs. Based on common sense, these reforms would ensure our employment laws are updated to reflect our modern society – once in which, for example, employers and employees have greater opportunity to directly negotiate workplace agreements that meet both their unique needs. We can also no longer ignore that the framework under which employers and unions negotiate collective workplace agreements needs major adjustment. In an industry such as resources which relies heavily on investment from the international community, we simply can’t afford to have a system that allows unions to leverage their power over workplaces by restricting employers’ ability to make the critical decisions that ensure projects are delivered on time and on budget. Although we have some challenges to address, with government analysis confirming the pick-up in non-mining investment is slow, we need less rhetoric about the transition away from mining and more discussion on how to stimulate resources investment to drive ongoing economic prosperity and create new, exciting careers for future generations. For more information on AMMA’s ‘5 reforms over 5 years’ campaign visit amma. org.au/backontrack july 2016 19
HIGH PROFILE
“We’ve realised a 10 -year strategy goal in one year”
By Ivo Bozon and Dumitru Dediu, McKinsey & Company
Gerard Paulides, who led Shell’s $66 billion acquisition of BG Group, describes the thinking, the process, and the intensity behind the deal.
W
hen Royal Dutch Shell announced plans last year to acquire BG Group, the Britain-based oil and gas producer, the deal represented both Shell’s largest M&A deal ever and one of the first energy mergers in an era of low oil prices. Although the acquisition came as oil prices continued to fall, investors roundly approved of it. Gerard Paulides says the strategic discontinuity in the energy sector is more fundamental than finding new resources or taking out costs as oil and gas remain volatile and the mix of energy sources changes. “Historically, the sector has done big M&A deals (rather than just regular asset transactions) when there have been big discontinuities,” he says. “In the late 1990s, the discontinuity was oil at $10 a barrel, and the focus was on managing costs. In
20 july 2016
the early 2000s, the discontinuity was the perception that the world was going to run out of oil and gas at some stage. The focus at that point was on finding more oil and gas reserves—both through M&A and organically finding and developing resources to produce. The discontinuity in the current environment is more fundamental than finding new resources or taking out costs. It’s about the ability to move in a changing world with highly volatile oil and gas prices—and, possibly, a different mix of future energy sources.” Paulides says companies in the oil and gas sector typically develop assets, resources, and relationships with governments organically and over the long term. “We like to hold onto assets, developing and producing them over three or four decades. Arguably, the industry’s integrated
Images courtesy of Shell International Ltd.
model between production upstream, trading, downstream, gas, and chemicals makes it a bit more dynamic than, say, a pure upstream model would. But at the same time, being integrated also makes the industry even more fixed.” Mr Paulides says the purpose of acquiring BG Group on such a fundamental scale allowed Shell to recycle a meaningful part of the company. “It’s a purposeful, deliberate move to emphasise the company’s strategic goals in certain segments, such as integrated gas and deepwater. We always have a coveted, or target, portfolio, but it’s always something of a 10-year outlook. With the BG acquisition, we’ve realised a 10-year strategy goal in one year.” Mr Paulides says keeping a close eye on volatility, in specific segments, over the shorter term, and also in the financial
markets in general has been imperative. He explains that if volatility is high—over a month, three months, six months—risk capital becomes scarcer and the ability to move is affected. “If you’re committed and you can fill that vacuum, then you can realise a first-mover advantage relative to your competition. And once you complete a deal, you can focus on running your business while your competition is still trying to deal with that volatility—retrenching in terms of cutting back spending, cutting back capex, laying off people, and making defensive moves.” He says it also means that once you’ve done a deal, you do need to get on with it. “You can’t continue to behave as if you hadn’t placed your money yet. You’ve been given a licence to spend so many billions of dollars, but people are watching you, and they have high expectations. And the
bigger the deal, the more fundamentally it will impact the company.” Mr Paulides says that during a deal, financial-market requirements need to be followed during the entire process, ensuring timely and complete disclosure of information. If the market reacts differently than you expect, then either you didn’t explain the deal very well or you didn’t see an issue that the market does. “You need to respond to that. I also think that in oil and gas it’s much too easy to say, ‘We’re a long-term industry, it’s a short-term blip. Let’s ignore it.’ The financial markets are based on ultimate transparency of information and immediate pricing, and its feedback is immediate, brutal, transparent—and free.” Therefore, he says, it is important to know why the markets react the way they do. “The financial markets have the luxury of not having all the detail, so they don’t come up with all sorts of rationales to explain why a result is not what you think it should be. They step back and look at the big trends, and compare and contrast, and say, based on all this information, ‘I get it,’ or ‘I don’t get it’. On the other hand, the company has the luxury of having all the detail, so it knows how to explain the market’s reaction. That can be a good thing or a bad thing, and you have to be honest enough with yourself to tell the difference.” Mr Paulides says that for a world-class transaction at the scale of the acquisition of BGit is important to not underestimate how grueling it can be. “If you think you’re going to be busy in those last three months, double what you expect, and you’ll probably get close to where it will turn out. It’s well worth paying extra attention to your own mental and physical fitness—as well as that of your team.” He says, in managing a company like Shell, 99% of the company doesn’t know what’s happening prior to the announcement, or why. After the deal is announced, the intensity changes, because then 99% of the company and the market know. At the end of the process—in this case, the last three months of a 12-month period- the heat went up. “The scrutiny gets even more intense, as people have to place their bets, the
shareholders have to vote, the debt providers have to calibrate their positions, and the other company has to make up its mind considering its own best interests and the latest developments in the market.” “There were certain points in 2015 and 2016 when I couldn’t open a newspaper daily without reading some write-up or some subject-matter-expert review— and everyone knows what you’re doing, including your entire family and all your friends. You probably cram three years into one.” The BG acquisition was a unique fit for Shell, and the timing and opportunity were there, says Mr Paulides. “The market’s reaction to the deal was complete and wholesome, and investors have embraced it as a good match. The debate was not about strategy or the rationale for the deal or the portfolio opportunity that the deal would create with divestments. The debate was ‘at what price?’ With oil prices dropping from above $100 a barrel in early 2015 to below $50 a barrel in early 2016, it’s difficult to price the opportunity. You need to work your way through that. So you have your base valuation, you have your financial metrics, you have your synergy on top of that, and then you have your reset opportunity for the company. And most of the debate was around the reset opportunity and the pricing.” He says it was a pretty luxurious position, because it meant they weren’t discussing strategy. “We weren’t debating portfolio. Our fundamentals were spot-on. That’s where you want to be for any deal. If you don’t get over that hurdle, you don’t have a hope of discussing financials, and value, and execution, and management quality, and trust, and all of that.” He says the biggest risks to the success of a deal like this is in failing to recognise the intensity of the integration needed. “Market conditions can make it easier or harder. If oil prices go directionally more up than down, life will be easier—but that carries its own risk. An improving market can bail you out too easily, without the intensity of the reset and the portfolio rebalancing. You may forget your original intentions.” july 2016 21
10 countries – including 53 Australian CEOs.
Global economy The report found corporate leaders recognise that to achieve growth, they must focus more clearly on the increasingly competitive landscape. Global CEOs are characterising the short to medium term as a time that will bring unprecedented change. While a majority of global CEOs see challenges ahead, with expected moderate economic growth, they are optimistic they can successfully manage through the environment. The next three years are seen by 72% to be more critical than the previous 50 years. Australian leaders (75%) are more concerned about the critical three-year outlook than their global counterparts, but also express greater confidence with a more bullish attitude. In the global context, the Brexit is a significant volatility event that has occurred in the time since the CEO Study was conducted. This event will no doubt give pause for thought for many CEOs around the world as they contemplate the impact on their business. In the coming months, more will become clear, however, the modest size and the impact of the UK economy in a global sense suggest the broader impact of the Brexit will be modest. “Nevertheless, the motto ‘who dares wins’ could be adopted for Australian CEOs,” said Peter Nash, Chairman of KPMG Australia. “They are taking on more risk than their global counterparts but they are also more confident about the medium term outlook.”
Growth outlook On the operational side, Gary Wingrove, CEO of KPMG Australia, pointed to the survey result showing almost half of global CEOs (48%) and a significant number of Australian CEOs (43%) said they expected to achieve top line growth of 2-5% in the next three years. “It’s significant that both global and
Australian CEOs are more confident about the growth outlook expressed in top line terms, but that Australian CEOs say they will depend far more on new markets to drive growth than their global counterparts,” he said. A third of Australian CEOs (36%) say new markets will be the most important source of growth (compared to 25% globally). Locally, new customers rank second as a growth driver (28%); new channels third (19%) and new products last (17%).
Focus on innovation The focus on innovation was a key highlight of the report findings. Mr Wingrove noted that for Australia, Prime Minister Malcolm Turnbull’s ‘National Innovation and Science Agenda’ appeared to have struck a chord with the local CEOs surveyed. “The trend of support for innovation expressed in the 2015 Global CEO Study continues this year. 28% of Australian CEOs nominated ‘fostering innovation’ as one of their top three strategic priorities - compared to 21% globally,” he said. “Only Chinese CEOs nominated this as a greater priority area (43%).” He noted that for Australian CEOs the competitive market and technology, rather than economic conditions, were now top of mind. “Strategically, innovation has come to the fore. It is significant that 45% of Australian CEOs say they are taking an ‘accelerated’ approach to innovation compared to 35% globally.” Mr Wingrove said it was also interesting that Australia was more concerned about implementing disruptive technology (Australia 28%) than global (18%), but that both local and global leaders had named a stronger client focus as a top growth priority (global 19%/Australia 17%).
Key strategic drivers Looking globally, Peter Nash said that with volatility in world markets and the increasing speed of change, CEOs
across the world were reshaping their strategies. “We are in a time of transformation and it’s a positive finding that an increasing number of both global and Australian CEOs are addressing disruptive change,” he said. “Global CEOs particularly have recognised the pace and nature of change but say they are still optimistic about growth prospects for their company, their industry and the global economy.” He noted that last year, the study showed CEOs were ‘somewhat confident’ about growth, but had concerns around short-term uncertainties. They had widespread plans to focus on hiring staff, while navigating the challenges of disruption and innovation – but the speed of transformation had intensified around the world since then.
Top concerns Global leaders recognised the demands of the increasingly competitive business environment with 70% expressing concern about ‘mission critical’ issues compared to only 64% of Australian CEOs. On the global front, the top concerns for CEOs were customer loyalty (global 88%/Australia 79%) and the impact of the global economy (global 88%/ Australia 87%). Time pressure was the third most significant concern for global leaders with 86% saying they lacked time to think strategically about disruption and innovation. Australian CEOs were even more time pressured, with 94% squeezed for the personal time needed to consider these drivers. Both global and Australian CEOs named innovation, digital transformation and disruption as their key strategic drivers. The impact of millennials (global 86%/Australia 79%), integrating automation such as artificial intelligence and cognitive (global/Australia both 85%), and keeping abreast of product and services developments (global 85%/Australia 81%) were amongst the top CEO concerns in this space. july 2016 23
HIGH PROFILE
CEO talks about pipelines, the gas market dynamics and the energy debate
A
t a recent Australian Pipelines and Gas Association (APGA) Dinner, Mick McCormack, Chief Executive Officer and Managing Director, APA Group spoke about the current gas market dynamics, the critical role of pipeline infrastructure in the gas supply debate, and innovation and investment in the pipeline industry. Mr McCormack has been in the pipeline industry for more than 30 years and has seen the benefits of billions of dollars of new gas pipeline infrastructure that has hugely contributed to the Australian economy. “The gas industry is critical to the Australian economy, and the pipeline sector is critical to the gas industry,” said Mr McCormack in his address.
24 july 2016
“Much has been made in recent times of high delivered gas prices and potential gas shortages, particularly in the lead up to the commissioning of the LNG projects at Gladstone. The term ‘gas crisis’ was widely bandied about up until recently, with such talk, in my view, ultimately leading to the ACCC inquiry.” The most important thing that came out of the inquiry, he said, is that there is sufficient gas forecast to be produced to satisfy both LNG and domestic demand to 2025. “That finding is predicated on forecast production occurring and, one would assume, on the ability for gas to get to market. That’s where the pipeline industry comes into play.” He said pipeline infrastructure is
critical to increasing gas supply, and increasing gas supply will put downward pressure on prices. The pipeline industry’s success is dependent upon more supply coming into the market, and more customers having access to gas. “To this end, the pipeline industry has a demonstrated record of investing and innovating to give customers the services they need to ensure gas projects proceed.” Over the last decade under the current regulatory regime, APA has spent over $12 billion on infrastructure, systems and technology to provide more pipeline capacity and flexible services to meet customer needs. APA invested in developing the East Coast Gas Grid, which links all major
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july 2016 25
HIGH PROFILE sources of gas to all major demand centres on the east coast making basinon-basin competition a reality. Around $100 million has been spent on IT and asset management systems to enable the provision of seamless, one stop shop services across the entire East Coast Gas Grid. “All of this investment and innovation has occurred without a cent of Government financial support, or regulatory oversight – the free market well and truly at work here.” Mr McCormack said there is no doubt that the LNG market has exposed domestic customers to LNG export pricing – noting that since the crash of crude oil prices in recent years, there is a question as to what the current LNG export price is. “I remember a couple of years ago seeing some domestic gas producers going into print saying the impact of export prices would see domestic gas prices rise three or four times.” “Contrast that with a J P Morgan research report I read recently that is predicting gas prices will increase by 40% over the next decade. That aside, one thing that is certain is that any domestic gas price increases have not been a result of increasing pipeline transmission charges.” According to Mr McCormack, transmission charges make up between 5-10% of the delivered retail gas price. The 2015 Gas Market Report published by the Department of Industry indicates that transmission tariffs for the industry as a whole have not increased in real terms since 2002, notwithstanding rising gas prices over that time. “This is a fact recognised by the ACCC. So the pipeline industry hasn’t been the party putting very steep price increases to the market – we’ve just charged what we’ve always charged and tried to grow the gas market.” “We are all in agreement that we need to develop more gas reserves. Gas reserves need infrastructure development, and that’s where the pipeline industry has, and will deliver. I am disappointed, but not surprised, that the ACCC report tends to
26 july 2016
characterise the pipeline industry as part of the problem rather than a critical part of enabling the solution.” Mr McCormack made a few observations on the ACCC’s findings:
1
Incremental projects – small part of total business
First, he said, the ACCC points to a number of incremental pipeline projects as evidence of broader concerns regarding monopoly pricing in the industry. “The allegation is a serious one and one APA absolutely rejects. To put the claim in perspective, the half dozen APA projects that we understand were relied upon by the ACCC to make this claim make up less than 1.25% of APA’s enterprise value on a net present value basis. And ‘as available’ and ‘interruptible’ services - also considered to be highly priced by the ACCC - account for less than 0.5% of APA’s total revenues.” He said no evidence of monopoly pricing was noted in respect of the remainder of APA’s business, with the ACCC acknowledging the existence of competition in the market for pipeline development, this being the basis on which the bulk of APA’s revenues are derived.
2
Context missing
Second, he noted, the ACCC acknowledged that competition occurs for greenfield projects and that resultant tariffs are an outworking of that competitive process. “Tariffs charged by APA for capacity on existing assets are generally consistent with foundation shipper tariffs, so in this regard, subsequent users get to piggy back off the competitive tariffs negotiated by foundation shippers.” Similarly, he said, almost all of the APA projects relied on by the ACCC as evidence of monopoly pricing, were subject to competitive pressures either from another pipeline or from customers. “Our customers are large, wellresourced companies, well able to look
after their own interests when it comes to doing deals.”
3
Incremental projects can’t be looked at in isolation
4
ACCC benchmark
5
No case for changing the regulatory test
The third point Mr McCormack made was that the projects selected were incremental projects that add value to existing pipeline assets (such as bidirectional or compression projects). “It is misleading to look at rates of return on incremental projects on a stand-alone basis without any reference to the costs or returns attributable to the underlying asset,” he said.
He further noted that the ACCC’s benchmark of what an appropriate return should be, is questionable. “There is certainly much room for debate around appropriate metrics and methodology – for example, asset base valuations, cost allocation methodologies and appropriate rate of return hurdles to compensate for project risk. I really struggle with what seems to be the ACCC’s overarching proposition that infrastructure developers should be happy with a regulated return irrespective of the risks inherent in the project and whether the project is yet to be constructed, or is well into operating phase.” “Unfortunately, the ACCC’s inquiry process did not provide an opportunity for industry to comment on a draft report, so much of the debate that should have happened, didn’t happen.Of course, with no consultation, the issue the industry faces is the blanket assumption that the ACCC’s recommendations are reliably worked up from a firm basis of fact or supposed ‘evidence’ as the ACCC likes to portray it – which is definitely not the case, and in my view is not the way sound public policy should be developed.”
It is on the basis of this evidence that the ACCC recommends a change to the test, presumably a lower threshold, for the regulation of pipelines.
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• Approved by WSAA to Product Spec # 324 for Casing Spacers • Supports Steel, DI, HDPE and MSCL carrier pipes from 100mm (4”) OD to 1600mm (63”) OD and beyond • Handles various annular clearances and allows customised positioning of pipe within casing for centering or restraining by combining different runner heights • Installs quickly and easily with unmatched versatility for easy insertion of carrier pipe on very low co-efficient of friction runners • Maximizes spacer capacity via load sharing runners that reduce point loading
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“The change to the test is a fundamental shift in the regulatory regime, introducing uncertainty and increased regulatory risk,” he said. Increased regulation comes at a cost – that is well accepted. The cost is both direct (compliance, administration costs, etc) but most significantly, the cost of distorting incentives to invest and innovate in critical infrastructure and so thereby limiting market growth. “The gas market is a substantial way through the biggest transition it is ever likely to see. The market needs time to transition and adjust, which it is doing. Changing fundamental regulatory settings at this time simply is not the answer to increasing gas supply.” The industry is currently working with the Australian Energy Markets Commission as part of its Framework review aimed at increasing liquidity and access to capacity. Improved capacity trading platforms, information transparency and, most recently, a proposal for capacity auctions with a zero dollar reserve for unutilised capacity are all on the cards. “It is by enhancing market mechanisms such as through these initiatives, rather than the prospect of increased heavy handed regulation, that gas market growth will be facilitated.”
Acquisitions and projects Diamantina Power Station acquisition APA recently acquired the 50% of the Diamantina Power Station that they didn’t already own, from project partner AGL. The acquisition includes two power stations with shared infrastructure – the 242MW Diamantina Power Station with combined cycle gas turbines and the 60MW Leichhardt Power Station with an open cycle gas turbine. EPX Takeover APA also acquired the Ethane Pipeline Income Fund, owner of the Moomba Sydney Ethane Pipeline. The asset runs beside APA’s Moomba Sydney Pipeline for most of its length. The acquisition offers the opportunity to increase their equity position in a pipeline asset with a long term contract in place which runs until 2030. Mortlake Pipeline APA recently participated with their SEA Gas partner, REST Industry Super, in the acquisition from Origin Energy of an 83km pipeline in western Victoria. The onshore pipeline supplies gas from the offshore Otway Basin to the Origin-owned Mortlake Power Station.
PIPELINE CONSTRUCTION & OPERATIONS MANAGEMENT Infield Impact is a multi-disciplined consulting company offering a unique blend of pipeline project management solutions. Pipeline inspection & supervision Land access management & stakeholder negotiation including: • Initial consultation with landholders affected by proposed pipeline alignment • Compensation & damages calculations associated with construction works
Permit to work Officers Third Party works management including safety management studies.
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Ongoing projects APA’s Victorian Northern Interconnect Expansion or VNIE project is well underway and APA is on track to deliver the first tranche of looping in this program shortly and the remainder of the looping by February 2017. Once complete, the pipeline will be fully looped from Wollert to Barnawatha and from Wagga to Young.
1300 463 435
www.infieldimpact.com july 2016 29
HIGH PROFILE
Low-viscosity lubricants – why the right oil matters
T
he fuel costs faced by the heavy vehicle industry have been extremely volatile over the past decade. In July 2014 diesel fuel costs were $1.52 per litre. By March 2016, through an unexpected combination of global political and economic forces, fuel prices dropped to $1.07 per litre. These significant swings in fuel cost are expected to continue into the future, motivating the heavy vehicle and trucking industry to find solutions that increase its fuel efficiency in order to stay profitable. Fortunately, technologies that can cost-effectively improve the fuel efficiency are readily available on the market today. Unfortunately, multiple barriers have stymied industry adoption of such technologies, including a lack of data about the true performance gains these technologies offer, and a lack of confidence in the performance testing data that does publicly exist today. According to the Trucking Efficiency, an initiative set up by the North American Council for Freight Efficiency (NACFE) and the Carbon War Room (CWR), since 2003, fleets have been ramping up their investment in lower viscosity lubricants. Viscosity is an important criterion of any lubricating oil. It is a measure of a fluid’s thickness or resistance to flow. However, while 40% of the largest, most efficiencyconscious fleets have adopted these engine oils specifically, the adoption rates for the industry as a whole remain at only about 20%.
Fuel saving lubricants In engineering terms, viscosity is defined as a measure of a fluid’s internal resistance to flow. In a truck’s engine, mechanical losses from pumping and friction consume approximately 16% of the total energy input to a vehicle. Lower-viscosity oil will reduce those engine mechanical losses, thereby reducing fuel use. Data from a Trucking Efficiency report shows fleets can realistically expect fuel 30 july 2016
savings in the range of 0.5% to 1.5% from switching engine oil. However, some misperceptions may have hindered the wide-scale adoption of lower viscosity oils thus far. “There is a generally held belief that heavier engine oil affords an engine better protection and therefore increases engine durability. But modern engines subject oil to a variety of temperature and lubricating conditions, and the ability of the engine oil to perform under these conditions depends on many more factors than simply the oil’s viscosity,” says the report. A switch to lower viscosity oil may allow a fleet to consider an extended drain interval. Although the ability to extend drain intervals varies greatly by various factors such as duty cycle, one fleet studied by the Trucking Efficiency extended its drain interval by 32,000 kilometres by switching to lower viscosity oil. However, extending drain intervals may require measures such as oil analysis and sophisticated maintenance tracking, which may not be appropriate or accessible for all fleets.
New oil standard in the US While low-viscosity engine oil has been on the market for many years, there is
an unprecedented change in the choices of engine oils available to fleets. Major organisations and engine manufacturers in the US have agreed on ambitious new goals for fuel economy and emissions in future medium- and heavy-duty vehicles. To meet these goals without any compromise in engine protection, a new generation of diesel engine oils is required. “Oil technology and engine technology go hand in hand. Changing regulatory limits challenge engine manufacturers to reduce emissions. As engine manufacturers begin to create a new generation of cleaner, more fuelefficient diesel engines, they need a new generation of higher-performing diesel engine oils to protect them. And they need to know those oils will be available to every diesel engine owner,” says Shell. The new PC 11 category to be introduced in December 2016 in the US is being driven by changes to fuel economy and emissions regulations that are prompting changes to engine components/sizes and often resulting in hotter operating temperatures. The arrival of the new category may help raise awareness of the fuel efficiency benefits of some engine oils, however it may also complicate the decision process as fleets assimilate the new information.
A pit refuelling system designed specifically for the mining industry.
Greater efficiency through control Fuelco, an Australian owned company, provides complete fuel and lubricant storage, dispensing and management systems across Australia to companies associated with Mining and Resources. Whether it’s in Mining, Oil & Gas, Construction or another industry dependent on fuel and lubricants … there can be considerable benefits obtained from controlling your bulk hydrocarbons. A safe and well-managed fuel or lubricant storage facility can improve operational control, reduce vehicle and equipment down-time, and generate a positive Return on Investment (ROI). “Our aim is to provide solutions which keep fleets, equipment and machinery fuelled, serviced and operating for optimum productivity” … responds Jason McNulty, Sales Manager, Major Projects for Fuelco. Fuelco is able to meet all of your fuel and lubricant storage and dispensing requirements. This includes site and project evaluations, transportation
of tanks and equipment to site, installation, training and ongoing scheduled maintenance. In addition to this, our highly professional team is on hand to ensure all technical and complex requirements are met from start to finish; with our own in-house team of qualified engineers and project management personnel available to assist with design and construction of projects.
FUELCO SERVICES • • • •
Supply and install of aboveground and underground tanks Installation and commissioning of single tanks through to large storage facilities Maintenance, repairs and cleaning of all tanks and dispensing equipment Removal of existing tanks and site remediation
FUELCO CONSULTANCY • •
Engineering and design services Fuel and lubricant facility compliance auditing Long term future hydrocarbon storage design and planning Mimimal CAPEX equipment funding solutions Flexible ongoing asset utilisation or asset divestment strategies Project management and delivery
Jason believes … “This enables Fuelco to take on tough challenges and solve problems that have previously proved difficult. Whether it’s a single 30,000 litre tank for vehicle refuelling or a pit refuelling and servicing system … we have the team to come up with a solution that is both cost effective and of the highest quality to best suit our client’s needs.”
•
Get in touch with the Fuelco team for total control of your bulk hydrocarbons by phoning +61 3 9775 1366 or +61 7 3205 5041 or via email … sales@fuelco.com.au.
Mr Jason McNulty
• • •
GET IN TOUCH
Sales Manager, Major Projects +61 456 953 549 jason@fuelco.com.au
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Offshore
Advanced Technology Grease breaks records in extending the life of machinery Rising costs, a downturn in the economy, combined with a gloomy financial forecast, means that Equipment owners need to find ways to improve their bottom line. Imagine if you could extend the life of your equipment components by up to 100%, while reducing downtime and using up to 50% less grease.
Grease is Grease, right? Wrong! Advancements in machinery design, during recent years have affected operating perimeters such as speed, load and temperatures. Improvements in performance have changed the requirements for lubricants. If the right grease is not being used in equipment, it will be at significant cost to business, in the form of excessive downtime and replacement of parts. On the other hand, the right grease will allow equipment to run for years without a maintenance problem.
comparison between lithium-complex and calcium-sulfonate greases reveals that Calcium Sulfonate greases hold an advantage. Calcium-sulfonate greases out-perform lithium-complex greases both on the data sheet as well as in actual applications. The most important difference between these two types of grease is that calcium-sulfonate greases do not typically need additives to meet certain performance requirements like lithium-complex greases do. CalciumSulfonate greases exhibit superior mechanical and shear stability compared to lithium-complex greases, indicating less leakage and run-out during operation. The dropping point and high temperature life of calcium sulphonate greases are also better, allowing these greases to be used at higher temperatures”. *
machinerylubrication.com/29658
Why it works Advanced Technology Grease’s unique formula actually penetrates 3-5 microns into the metal surface, it fills microscopic pits and grooves, creating a honed surface, thereby reducing friction and heat. Unlike other greases, ATG does not contain the glues and tactifiers, which break down under harsh conditions. ATG provides excellent thermal stability with a drop point of 300 degrees Celsius, it out-performs other greases in high heat high pressure situations.
Advanced Technology Grease is a game changer Advanced Technology Grease (ATG) is a technologically advanced Premium Calcium Sulfonate, high performance multi-functional grease. Calcium Sulfonate Grease has been scientifically proven to out-perform other types of greases on the market. In a recent article* Dr Kumar, a leading scientist in the industry wrote “a careful
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Huge benefits • Reduces Maintenance & downtime costs • Extends component Longevity • Outstanding Performance in high Pressure, High Heat conditions • Extremely High Drop Point • Doesn’t attract dust & grime • Superior water resistance, no water washout • Resistant to corrosion • Performs best in Hostile conditions
If you are in these industries you need Advanced Technology Grease • • • • • • •
Mining Quarrying Earthmoving Transport Cranes Drilling Processing plants
What people are saying about Advanced Technology Grease “I was willing to see if the fairy tales about Advanced Technology Grease were true” After years of limited success trialling several different manufacturers and styles of lubrication on our high temperature, high load equipment (40 tonne rotor, operating at 180 degrees Celsius). I was willing to see if the ‘fairy tales’ about Advanced Technology Grease were true. A 3month trial in our hottest and heaviest machine showed no sign of separation, whereas previous greases had separated to the point that there was solid thickener material within the housing. In my opinion, the Advanced Technology Grease is definitely a value-adding solution to your lubrication program. Andrew- Rendering Plant Engineer, AJ Bush & Sons (Manufacturers) Pty Ltd “Our downtime has been halved” Advanced Technology Grease has provided a dramatic reduction in maintenance costs. Our service downtime has been halved, with a massive reduction in maintenance and repairs required. In the past 14 months since using ATG we have not had one Kingpin failure or Shackle Bush failure. I feel in our wet, harsh operating conditions our results speak volumes. Greg Hyland, Vac Group
ENVIRONMENT
Reform to improve Australian hazardous waste management
A
ustralia produces approximately six million tonnes of hazardous waste a year which constitutes more than 10% of the national waste generation. Following a commitment in the National Waste Policy: Less Waste, More Resources, the Australian Government Department of the Environment (DoE) has introduced an assessment of Australia’s current and future hazardous waste infrastructure capacity and the needs for reform. The aim of the study was to provide projections of hazardous waste over a 20 year timeframe, estimate the capacity of current hazardous waste infrastructure available in Australia to manage these waste groups; and identify potential future shortfalls in hazardous waste infrastructure. The result from the study shows Australia’s hazardous waste has been projected to rise from about 5.7 million tonnes (Mt) in 2013-14 to 9.9 Mt in 203334. This represents an average growth rate of 2.8% per year. The top six hazardous waste groups include alkalis, oils, grease trap waste, contaminated soils, asbestos and tyres. These waste groups signify about threequarters of the hazardous waste volumes. Some waste groups are projected to grow strongly over this period, including: lithium-ion batteries (average growth rate 12% per year); non-toxic salts (9.0%); oils (6.1%); and alkalis (5.7%). The study also shows that over the next 20 years the potential capacity of Australia’s current and planned hazardous waste infrastructure will be able to recycle hazardous waste increases. However, there are some hazardous waste types where infrastructure is or will be insufficient in terms of lithium-ion batteries, contaminated biosolids, mercury, coal seam gas wastes, spent pot linings and asbestos. 34 july 2016
Hazardous waste reform In 2015 the DoE released a report to test the feasibility of a series of short-listed options for national hazardous waste reform in Australia with a selection of industry and public sector stakeholders. The current areas of hazardous waste reform include improving the national legislation, pursuing harmonisation with other policy areas such as transport, better data and reporting, addressing gaps in infrastructure and infrastructure information, and developing a nationally consistent system for tracking the inter and intra state movements of hazardous waste. At the Federal level the objectives of a reform is to improve Australian hazardous waste management, markets and regulation. The Commonwealth will achieve its policy objectives by: • Amending national hazardous waste legislation • Pursuing harmonisation with other policy areas (such as transport)
• Enhanced hazardous waste data and reporting (domestic and international) • Investigating nationally-consistent inter and intra-state waste tracking • Providing better information on Australian hazardous waste infrastructure and its capacity. The reason for doing this is to meet Australia’s international obligations to: • Minimise the generation of hazardous waste • Ensure that hazardous waste is managed efficiently and effectively • Protect human health and the environment. Currently, the Commonwealth’s areas of responsibility for the management of hazardous waste are complex and varied. They relate not just to transboundary movements of hazardous waste, but also to other aspects of Australian management of hazardous waste. The Hazardous waste reform proposals analysis report by the DoE, has nominated 10 legislated reform options to clarify the Commonwealth’s role in a number of domestic
domestic and international facilities). An agreed, nationally-consistent arrangement for hazardous waste data collection and reporting, based on consistent definitions and classifications, aligned with data and reporting arrangements for nonhazardous wastes, and international hazardous waste classifications (e.g. the Basel Convention). 5. Powers consistent with those in radioactive waste legislation for the establishment and maintenance of hazardous waste processing or treatment facilities. The selection criteria for the preferred processing technologies should have due consideration of the waste hierarchy. 6. National consistency of tracking systems for movements of controlled (hazardous) wastes, covering inter and intra-state movements. 7. Harmonisation of regulatory arrangements pertaining to hazardous wastes or specific hazardous wastes (e.g. asbestos), such as between transport and environmental regulation. 8. The development of a series of Federal policy guidelines and standards on specific hazardous waste management issues in Australia, with clear linkages to the international policy environment. Examples of the types of issues the guidelines could address include: management of end-of -life rechargeable batteries; management of wastes containing brominated flame retardants; or management of mercury containing wastes. 9. A nationally -consistent system of hazardous waste levies (including a Commonwealth import/export levy or charge for international movements), to reduce economic incentives to transport wastes long distances to fates of possibly higher risk to health and the environment, consistent with the proximity principle under the Basel Convention. 10. A nationally-consistent approach to landfill bans or conditional disposal restrictions for metropolitan areas, to support product stewardship. For example, in relation to e-waste or 4.
areas. These are intended to either assist in streamlining regulation and hazardous waste management between jurisdictions, or are necessary to meet Australia’s international obligations. The 10 reform options are: 1. Provision of national information on the capacity of, and needs for, hazardous waste infrastructure in Australia, on an ongoing basis. 2. Provision of regular and timely public reporting on hazardous waste generation and management in Australia. This reporting could also capture public interest aspects such as the industrial activities generating hazardous wastes, new infrastructure, or noteworthy hazardous waste minimisation achievements. 3. A power to establish a statutory covenant or similar agreement for dealing with particular wastes (e.g. an agreement with legal status to phase out of stocks of spent pot linings, via
Coal seam gas hazardous waste CSG mining occurs predominantly in Queensland and to a lesser extent in NSW. Consequently, approximately 80% of CSG-based waste is generated in Queensland, in the Bowen and Surat Basins. The CSG extraction process produces a range of wastes, but salt wastes are the most prevalent. Water is extracted as part of the CSG mining process because the methane gas is in the coal seam and held there at great pressure by water and other sediment layers. To release the gas, the water needs to be pumped out of this coal seam and up to the surface in a process known as ‘dewatering’. The water that is pumped out as part of the CSG mining process is very salty and contains a range of petroleum and mineral based chemical compounds, such as heavy metals and hydrocarbons. Once at the surface, the water is stored in ponds and treated by desalination to enable reuse, to the extent possible. However, this process leaves a salt brine or solid salt waste as a by-product. This salty waste stream may also include hydrocarbons and heavy metals as residual contaminants from the original CSG extraction process. CSG wastes are interesting as an emerging waste because a) very large tonnages are involved and b) salty waters, brines or solid salts are a difficult problem for the waste industry, which often relies on landfill. Water penetrating a landfill will mobilise any stored salt in the leachate stream, which creates a risk of groundwater infiltration, especially given the volumes to be managed. Consequently, landfill design is critical for this form of management to be successful. The enormous volumes also mean that treatment to reduce the salt levels, such as reverse osmosis, are expensive and energy-intensive. Because of these management difficulties, large quantities of CSG wastes are temporarily stored on site in brine ponds or other temporary structures offsite, awaiting a more definitive management fate. Industry and government estimates of water volumes extracted each year, multiplied by typical salinity of this water, yield an estimate of approximately 21 million tonnes of salt over the next 30 years. The fate of this waste is spread between: • recycling (41%) • storage or transfer (34%) • landfill (22%). Depending on the location of the mining activity, discharge to ocean of salty water is also likely to be a fate for this waste. According to the Hazardous waste infrastructure needs and capacity assessment report by the DoE, on a treatment-difficulty and sheer scale basis, CSG waste is a current and future management problem.
july 2016 35
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What can we solve for you? With over 57 sites nationally and servicing over 20,000 customers, Toxfree provides solutions for some of Australia’s leading businesses and government organisations throughout Australia.
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ENVIRONMENT We are standing at the dawn of a new era. Over the last 10 years, the solar PV industry has defied the sceptics and has gone from being a cottage industry to a major disrupter to all traditional energy sources. By Simon Currie, Norton Rose Fulbright Australia
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arge scale solar PV is now competitive in many different scenarios and markets. The latest pricing signals from the Dubai 800MW tender are stunning - US$0.0299c/kwh was the lowest bid. It was only two years ago when a bid under US$0.10c/kwh was seen as unsustainably low and the market believed there must be hidden subsidies for the equity or debt.
38 july 2016
The present and future applications of solar energy At these levels solar PV isn’t just competitive against the very best wind projects but, in many markets, it can now compete against existing coalfired generation and that is without imposing carbon taxes or caps on emission levels. So now the question turns from whether solar PV can compete to how we redesign our energy systems to make the most out of this technology and the inevitably high levels of deployment. We know solar PV has the potential to be successfully applied in many more places around the world than wind, hydro and most other renewable energy technologies; however, the sun doesn’t shine all day anywhere and, even when it is sunny most of the time, clouds have a habit of creeping across the sky when we least expect them.
Solar PV+ What do we mean by ‘Solar PV+’? We view solar PV+ as a system or a solution which delivers more than just AC or DC electricity. We will explore some of the obvious (and less obvious) alternatives to standalone solar PV. Solar PV+ is the idea of utilising solar PV in a number of varying and innovative ways by integrating it with other technologies or deploying solar PV in non-traditional ways (Solar PV+) and this article is intended to offer some ‘food for thought’ and demonstrate the adaptability of solar PV.
Solar PV + battery storage Solar PV + battery storage is hardly an innovative solution. Many companies have already come out with products which provide different solutions for industry and remote communities. The
potential for combining batteries with solar PV has been picked up by many developers. Some developers, such as global renewable company RES, have started with standalone battery systems in the US and have now started to look at deploying solar PV/battery systems. Companies such as Neoen, Juwi and EDL have built systems designed for remote, off-grid mining sites and major suppliers such as ABB, Siemens and GE all have an integrated offering of products. Large scale solar PV projects are being developed with associated batteries which have the advantage of allowing solar PV owners to shape generation profile to meet demand, reduce peak network demand and increase voltage control. However, integrating solar PV and storage creates the inevitable regulatory challenges we often see when traditional systems are challenged by new technology. Regulations and (the lack of ) market rules create uncertainty, which places additional burden on the early projects. For example, in the US the Federal Energy Regulatory Commission may
consider a storage project to be a generator, but at state level they may classify that same project as transmission or distribution. It is regulatory dilemmas like this that we will continue to encounter as we grapple with integrating battery storage into a regulatory regime where network operators have not yet developed the technical standards to address the issues of connecting batteries to the system. The costs of batteries aren’t falling at the same rate as solar PV. However, the overall system costs continue to fall and we believe this is helping to make the battery storage option increasingly viable.
Solar PV + Hydropower Hydropower is all about making the most effective use of the available water resources. If you look across the global hydropower fleet you will find a number of projects which are running at low capacity levels because of water shortage or the need to divert water for alternative uses. In countries like Norway, they have pioneered the combination of wind and
hydro power in order to maximise the value of the wind and water resources. The same principles apply to combining solar PV with hydropower projects. This can be done on a physical basis with solar PV being sited close to the Hydroelectric Power Project (HEPP). Alternatively, we are seeing owners of large scale HEPPs starting to develop solar PV projects which are connected to the same grid system or power pool but not located close to the existing HEPP. The owner will then dispatch the HEPP taking into account the production from the solar PV project. This helps save the precious water to meet peak demand system support requirements. In some markets the impetus is provided by the renewable certificate regime as existing hydropower projects may not be eligible to receive such certificates. This hampers the ability of owners of large scale HEPPs to enter the retail and wholesale markets and compete with other utilities who may, for example, own wind and solar facilities alongside flexible thermal generation.
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ENVIRONMENT Solar PV + Water As you fly into Heathrow airport from the north you come over the Queen Elizabeth II (QE II) reservoir, one of the main sources of drinking water for London. If you look carefully you will see one of the first large scale floating solar PV projects in the UK. This project was financed on a project finance basis as part of a portfolio of projects developed by Lightsource Renewable Energy. Floating PV is not just about finding areas of land which are effectively sterilised from other development (like a city supply of water) and covering it with solar panels. Floating PV can bring a number of benefits to water sources. Water reservoirs are faced with a range of challenges. These include the rates of evaporation (which can make a huge difference in sunbelt countries) and the impact of algal bloom and weeds. One of the ways to address these issues has been to invest in relatively expensive covers for reservoirs. However, Floating PV can eliminate some of these issues. While you may not deploy Floating PV across an entire reservoir or system, it has been shown that Floating PV can improve evaporation rates and should reduce the risk of algae and weed affecting water quality. There are a number of different technologies. Some of them are floating islands, others work on the basis of tethers and anchors. It is important to note that Floating PV should not be an expensive option. Some of the costs of ground mounted solar can be avoided, such as frames and foundations. This will help offset the added costs of constructing and operating in a new environment. It’s not just a cost issue; Floating PV is simply an efficient use of space. The QE II Floating PV project covers only 6% of the reservoir and has no discerned impact on the ecosystem.
Solar PV + Desalination Desalination is a costly, energy-intensive process that is usually powered by fossil 40 july 2016
fuel baseload plants. Some countries have already required renewable energy inputs in order to make the desalination process more sustainable. Solar powered water desalination has the potential to dramatically increase access to fresh water in many arid locations and we have seen ‘desert projects’ in places such as Chile and Saudi Arabia. Solar PV generation isn’t always aligned to the load requirements of a desalination plant which may require baseload generation, but solar PV will now be one of the cheapest options in many places. When you think about countries like Namibia where there are limited supplies of potable water, a low population and a huge sunny non-arable land mass it seems sensible to look at using solar PV when developing a new desalination plant.
Solar PV + Wind The regulators and the market have finally woken up. Why do we keep building expensive new grid connections and not encourage developers to install solar PV next to the wind farm or somewhere along the route of the connection? It won’t be viable everywhere, but in many countries globally the energy yields from solar PV are relatively constant across the country, even if the wind resource is not. This trend is also being encouraged by off takers as they would much prefer to buy a block of power rather than just variable wind output. Installing solar PV doesn’t magically transform a wind project into a base load generator but it looks a lot better than on a standalone basis. In many locations there is a very low risk of material constraints on output because of the lack of correlation between the wind and solar resources. In order to properly incentivise developers to look at hybrid solutions, we suggest that grid companies should be encouraged to offer more attractive connection terms for such projects. Grid companies generally benefit from having the grid being used on a more regular basis across each day. In some markets there will be benefits already (such as
Image by Lukassek
incentives for generators within a local distribution grid).
Solar PV + CSP Concentrated Solar Power (CSP) was long seen as a straight alternative to solar PV. If you want flexible generation and you have the right levels of sun, heat and weather conditions CSP is a possible option instead of solar PV. Some countries such as South Africa, Morocco, Israel and, in the past, the US and Spain have strongly encouraged the development of large scale CSP projects. Parabolic trough and tower technology is generally recognised as proven, and the levelised cost of electricity (LCOE) of CSP has fallen. However, costs have not fallen anything like the cost of solar PV, and the cheapest projects in Morocco and South Africa remain materially higher than the latest solar PV costs. In a market like South Australia, where there are very high levels of wind penetration and declining levels of thermal generation, CSP may be a sensible way of providing flexible generation to help balance the system, even at costs above $1/kwh. The next generation of projects will see solar PV + CSP on an integrated
Some countries such as South Africa, Morocco, Israel and, in the past, the US and Spain have strongly encouraged the development of large scale CSP projects.
reuse the existing shaft of the mine. This concept may be replicable on a global basis and allow us to come up with innovative uses of existing depleted and closed mine sites. In the context of an open cast site it may be feasible to have solar PV suspended above the PSH reservoir rather than located adjacent to the mine. This is likely to increase costs when compared to a simple groundmounted site but may be a sensible option when available land for solar PV is limited. Solar PV projects have also been successfully developed inside depleted mines or quarries (such as Lark Energy’s project in Rutland County, UK). This demonstrates that solar PV can be an efficient tool to rehabilitate existing industrial sites.
Solar PV + Technology basis. There are already some sites in Spain and the US with solar PV and CSP but many of these grew organically rather than being designed as an integrated project from day one. One of the drivers for integrated projects is better utilisation of scarce transmission resources in markets like South Africa. In 2016 Moroccan Agency for Solar Energy (Masen) will invite expressions of interest for the Noor Midelt project in Morocco. This will require bidders to propose a 400MW solution combining solar PV with CSP which is expected to deliver energy at certain times and achieve the lowest overall tariff. One of the practical issues with solar PV + CSP is the limited number of CSP developers. Large players include Engie, ACWA, Solar Reserve, Acciona and TSK, but some other competitors have exited the market. This means that you may not get the same levels of competition for an integrated project as you see for a straight solar PV project. However, we believe that integrated solar PV and CSP projects will prove to be one of the winners in a Solar PV+ world. This is because the LCOE of integrated projects will benefit from the falls in solar PV and you are combining traditional steam turbines which are
proven heat collection systems with solar PV technology.
Solar PV + Pumped Storage Hydro Pumped storage hydropower (PSH) has been one of the principal methods of delivering flexible fast response generation in many developed markets. Generally PSH has involved large scale projects which are capable of providing electricity and system support services for the system as a whole. The water is pumped to the reservoir using electricity at off peak times and then made available when the system needs it the most. Currently well over 90% of the installed storage capacity globally is PSH. The combination of renewable energy with PSH has taken off in recent years – with large scale projects developed in Spain and the US. One of the most high profile examples is the Kiddston solar PV + PSH being developed by Genex Power in an old gold mine in Australia. The solar PV project is located next to the proposed Kiddston PSH project which will be located in the old mine. Rather than build expensive reservoirs and tunnels in a hill (the conventional way of building large scale PSH), it will
It may sound confusing to talk about combining solar PV with technology. What we mean is how you can take basic solar PV systems and turn them into something which is more system friendly. We strongly believe that the renewable energy industry needs to move towards self-help rather than expecting the system to bear the costs of intermittency and the limitations of the resource. Inverters are getting smarter. We are seeing inverters which can store energy for short periods of time and are responsive to market and system signals. You can’t convert solar PV into spinning reserve overnight (or probably ever), but you can legitimately expect solar PV project owners and operators to invest in weather forecasting tools so they can accurately predict their output and reduce system costs. This concept has been implemented in markets like Kenya where they are extremely concerned about the impact of wind and solar on their fragile grid system. As solar PV system costs fall we expect that network operators and regulators will encourage greater investment in such technology and it will become a standard requirement in some markets. july 2016 41
ENVIRONMENT
Lessons learned from recent oil spills
I
n May this year an oil spill from Royal Dutch Shell’s offshore Brutus platform released 2100 barrels of crude oil into the U.S. Gulf of Mexico. The more than 300,000 litre oil leak occurred near Shell’s Glider field, an underwater pipe system that connects four subsea oil wells to the Brutus platform, which floats on top of the water. Oil spills such as this are an inherent risk associated with offshore petroleum activities. While these events are very unlikely, they pose a threat to the marine environment. The uncontrolled release of hydrocarbons at the Montara oil field in the Timor Sea in 2009, was Australia’s third largest with respect to volume of oil spilled and it put spill response arrangements, including environmental monitoring capacity, to the test in a remote environmentally sensitive offshore area. In an information paper released in March, the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) notes that together with the Macondo incident in the Gulf of Mexico in April 2010, these incidents have highlighted there is no place for complacency when it comes to planning, despite the very low likelihood
42 july 2016
of a major spill occurring. The immediate impacts of marine oil spills can be quite obvious, attract immense public attention and consequently both incidents, no doubt, adversely impacted the offshore petroleum industry’s social licence to operate. On the other hand, the levels and types of environmental impacts that may be more subtle, take time to manifest, occur at places distant from the spill site or affect organisms indirectly, are much more difficult to determine. The challenge in determining these impacts may be even greater in situations where forward planning and preparation is inadequate or does not occur at all. Since the Montara oil spill, the Australian Government has strengthened the regulatory requirements and expectations of industry with regard to implementation of environmental monitoring in the event of an oil spill from an offshore petroleum activity. On 5 November 2009, the Commonwealth Minister for Resources and Energy announced a Commission of Inquiry into the Montara oil and gas spill. The Inquiry investigated the likely causes of the incident and made recommendations to the Government on how to prevent and, if necessary, manage future incidents, including
environment management matters. The inquiry found that the absence of solid reliable baseline data rendered the environmental monitoring arrangements in place for that spill inadequate. Similar concerns were raised with respect to aspects of the post-Macondo monitoring. Underdeveloped planning for environmental monitoring of the Montara incident contributed to a delay in the implementation of environmental monitoring and lost opportunities for maximising returns from work that was being done. The inquiry found that the full environmental consequences of the blowout will never be known, due in part to the absence of solid reliable baseline data and the slow response in putting in place the monitoring plan. Therefore, an outcome of the inquiry and the Australian Government Final Response and Implementation Plan, is the expectation that titleholders should develop suitable operational and scientific monitoring programs (OSMP) and be ready to promptly implement them in the event of an oil spill. The NOPSEMA Operational and Scientific Monitoring Programs paper provides advice and information for titleholders to develop fit-for-purpose
OSMPs and an appropriate degree of readiness in the event of an oil spill. The OSMPs need to meet the requirements of the Offshore Petroleum and Greenhouse Gas Storage (Environment) Regulations 2009. The EP, oil pollution emergency plan (OPEP) and OSMP are parts of an integrated package of environmental management documents designed to manage environmental issues and protect the environment during routine operations and emergency incidents associated with offshore petroleum activities. The OSMP is the principle tool for determining the extent, severity and persistence of environmental impacts from an oil spill, and allows titleholders to determine whether their environmental protection goals are met. The OSMP can also be used to test how effective the oil spill response is being in protecting the environment. Scientific monitoring in the OSMP may also have secondary aims such as to
improve predictive and response capacity for future oil spills or to help direct remediation efforts. NOPSEMA says there are a number of areas where environmental monitoring of offshore petroleum incidents may be improved in the aftermath of the Montara Incident, including: • improved prior planning for environmental monitoring in the event of a spill, including the establishment of appropriate environmental baselines to inform environment damage assessment • better integration of ‘operational’ and ‘scientific’ monitoring • reducing the time taken to implement scientific monitoring • the utilisation of water sampling undertaken during the response to inform assessments of the transport, fate and impact of dispersed oil • the rigor of detailed design and implementation aspects of scientific monitoring
• the efficacy of monitoring triggers. When planning and applying OSMPs titleholders should bear in mind: • the vastness and remoteness of the offshore area when justifying their readiness; • the global significance of a number of environmental values as part of their considerations of nature and scale • seasonal variation in relation to the environmental values, in particular critical life stages susceptible to oil spill and response impacts • that many values of Australia’s offshore area rely on the maintenance of a clean and healthy marine environment • the findings and recommendations of the Montara Commission of Inquiry and the Government’s final response and implementation plan • lessons learned from recent offshore incidents in the Timor Sea and Gulf of Mexico.
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SKILLED
Australian hiring intentions reflect employer resilience
T
he latest Manpower Employment Outlook Survey results show that the steady increase in hiring intentions in Australia will continue into the third quarter of 2016. Of the 1,500 public and private employers surveyed, 13% indicated they are looking to hire over the July to September timeframe, while the majority (78%) intends to make no change to their current headcount. Both figures remain unchanged since last quarter. Employers in six of the eight regions expect an increase in employment levels during the July-September period. Richard Fischer, Managing Director, ManpowerGroup Australia and New Zealand, said the latest survey results point to employers seeing positive signs ahead despite some challenges and less upbeat economic indicators. “The uptick in hiring intentions for the next quarter presents a picture of national resilience among businesses. Companies are largely looking to bolster their talent or maintain headcount – and this is in the context of some broader challenges such as stagnant wage growth, an uncertain national political landscape, and record low interest rates,” he said. 44 july 2016
“It would appear businesses are blocking out the noise around economic and political uncertainty and getting on with executing their business plans. This is true of both large corporations as well as small to medium enterprises, which have been coined as the driving force of our economy.” “Further, we are seeing positive signs that bolster the argument of Australia’s transitioning economy, with growth flagged on the one hand in areas such as services,” Mr Fischer added. The latest survey reveals a few bright spots for job seekers across the country. Employers in the Australian Capital Territory forecast the nation’s strongest hiring intentions and report an outlook of +16%, up 7% from the last quarter and 13% from last year. Similarly, businesses in New South Wales and Victoria also indicated they will increase their headcount in the next three months, reporting net employment outlook (NEO) of +12% and +11%, respectively. Cautiously optimistic outlooks of +9% are reported in both Queensland and Tasmania. The Northern Territory reported its
weakest and third negative hiring outlook since the territory was first included in the survey in quarter two of 2004. It reported a sluggish NEO of -4%, down 2% from last quarter and down 6% from the same time last year. “Employers in the Northern Territory in particular continue to feel the impact of the mining downturn and slow population growth,” observed Mr Fischer. “While the majority of employers in the Northern Territory are not looking to change their headcount in the next three months, it will be crucial to help them transition its economy to new areas, which we believe will result in opportunities for the wider employment market.” Payroll decreases are also reported in Western Australia where the NEO stands at a weak -6%. However, when it comes to hiring intentions, Western Australia employers report the most noteworthy increase of 10%, while the ACT outlook is 7% stronger. Increases of 6% are reported in both Queensland and Tasmania. However, the outlook for Northern Territory declines by 2%. “While broadly the mining sector continues to decline as a major economic driver, the recent property boom and focus on infrastructure has led to the mining and construction sector seeing an uptick in hiring intentions, showing a 10% increase from the previous quarter. “Hiring is incrementally increasing and stabilising in construction and property across Australia as a result of the
growing number of infrastructure projects commencing after gaining approvals. This looks likely to continue given the current political and societal climate in particular,” added Mr Fischer. Employers in medium-sized businesses are expecting the strongest hiring environment in the July-September time frame, and the NEO of +11% represents a 7% jump from the last quarter. Smaller employers are also showing encouraging signs and reported NEOs of +2% and +9%, respectively.
Mining and Construction outlook Opportunities for job seekers in Australia will improve slightly from three months ago, with Australian employers reporting positive hiring intentions in all industry sectors and all but two regions. With a NEO of +5%, employers report encouraging signs for job seekers in the next three months. The mining and construction sector hiring intention
Australian employment outlook
outlook will improve by a considerable margin of 10% when compared with the previous quarter and improve by 6% yearover-year.
Asia Pacific job market comparison The survey of nearly 15,000 employers in the Asia Pacific region indicates there will be some payroll growth in each of the eight countries and territories. However, outlooks dip by varying margins in five of the eight. This slowing momentum is especially true in China where the forecast remains positive but matches the country’s weakest outlook which was first reported in Quarter 3 2009. Employers in India and Japan report the strongest hiring plans. In India, opportunities are expected to remain abundant with more than a third of employers indicating they will add to payrolls in the July-September time frame. Job seekers can expect the most opportunities in the services and the
transportation and utilities sectors. Japanese employers continue to search for talent in an increasingly tight labour pool, and this pursuit is expected to keep Japan’s labour market active. Potential opportunities for job seekers remain strong in most industry sectors and regions, with nearly a quarter of the employers expecting payroll growth over the next three months. Conversely, China’s hiring plans weaken in all industry sectors and all regions. China’s downturn may be rattling employer confidence in Taiwan, one of its key trading partners. Taiwan’s forecast has declined for five consecutive quarters and is now weaker than at any point since Quarter 3 2009. Outlooks in Hong Kong dip slightly, yet the hiring pace is expected to remain steady with positive forecasts reported in all industry sectors. Meanwhile, Singapore’s forecast sinks to its weakest level since Quarter 3 2009. Yet, the forecast remains uniformly positive and only 1% of employers say they intend to reduce payrolls in the next three months. Source: Manpower Employment Outlook Survey Australia 2016
july 2016 45
model WHS Regulations are intended to complement and support the primary duties under the model Work Health and Safety Act (the model WHS Act). They include provisions on such matters as: representation and participation at the workplace; general workplace management; hazardous work; plant and structures; construction; hazardous chemicals; major hazard facilities; and compliance. Some elements in the model WHS regulations will not be included as they will be in the jurisdiction of other departments. This includes the model WHS regulations for mines, major hazard facilities and dangerous goods which will be administered by the Department of Mines and Petroleum (DMP). As with the WHS Bill 2014, the intention is the subordinate regulations will predominantly mirror the provisions of the model WHS regulations with
amendments suitable for the Western Australian working environment. Some areas of the Model Regulations are proposed to be amended where there is no evidence that the likely increased compliance burden associated with them will achieve improved safety outcomes. These areas will be amended to more closely align them with the current requirements of WA’s Occupational Safety and Health laws (Current Laws) and include: • the training requirements to be considered a competent person; • the arrangements for licensing assessors to conduct clearance inspections for licensed asbestos removal work; and • the requirements to create and retain specified records.
• a prohibition on tobacco smoke in the workplace; and • commercial vehicle driver regulations.
Some Current Laws requirements that do not appear in the Model Regulations are also proposed to be included in the Proposed Regulations. These include:
It is also anticipated that the model Codes of Practice and other guidance material will be adopted with appropriate modifications.
These provisions will be included in Western Australia’s version of the model WHS regulations. Not all of the provisions unique to the Current Laws have been recommended for inclusion in the Proposed Regulations. Where it is considered that the general duty and appropriate guidance material is sufficient to maintain current safety standards it is not proposed to include specific additional regulations. Examples include the requirements for: • abrasive blasting; and • spray painting booths.
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SAFETY
Safety and the Internet of Things
T
he Australian mining industry carries many inherent risks for workers located in one of the most remote regions of the world. Operating in the Australian outback, where many risks of heatstroke and other health dangers can injure or even kill workers in hours with little warning, more companies are using the power of the Internet of Things (IoT) to keep workers safe on site. An innovative personal safety system developed by a team of RMIT and CSIRO researchers monitors and sends smartphone alerts if a mineworker’s clothing - or personal protective equipment (PPE) - is not being worn correctly or not working properly. RMIT’s Dr Prem Jayaraman describes the IoT application, called PPEofThings, as almost having a mind of its own. “This system allows you to monitor the safety of people on site, provide real-time, location-specific alerts, and
48 july 2016
improve communications,” he says. “It works by making a miner’s clothing ‘intelligent’, with embedded sensors on all their personal protective equipment – safety glasses, helmets and even boots – which then monitor and inform mine personnel of potential safety hazards, like if they’ve forgotten to use safety glasses. “The system can even differentiate between whether they’re being worn in the right or wrong way.” Jayaraman says PPEofThings also takes into account the qualifications and experience of mine personnel, as well as the changing state of the mining environment, using a sophisticated system of IoT sensors, wireless technology and smartphones to provide personalised safety geofencing. In other words, the system creates a virtual barrier around each individual mine worker that if triggered sends warning alerts to designated smartphones.
“We use low-cost, energy-efficient Bluetooth sensors that you can get anywhere, such as iBeacon and TI SensorTag, attached to regular PPE clothing, including helmets and safety glasses, to provide real-time safety situation-awareness and predict health and safety incidents before they occur,” he said. “This is a great example of the way the Internet of Things enables the collection and sharing of data to make practical differences to people’s lives, such as with workplace safety.” PPEofThings is now receiving backing from the Victorian Government and mining company Anglo American for a commercial release. Honeywell and Intel last year also developed a prototype of a personal connected safety solution that can reduce workplace injury and improve productivity. The Honeywell Connected Worker solution includes a Mobile Hub that collects and provides sensor fusion, which refers to data collected from a variety of sensors on a worker that are compiled to provide a broader and more accurate picture of what that worker is experiencing. The data is pulled from a selfcontained breathing apparatus, a heart rate monitor, and several other devices, including a toxic gas monitor, an activity detection device, and a nonverbal gesture device. The resulting data and actionable intelligence is displayed remotely on a visual, cloud-based dashboard, giving plant managers and incident commanders the information needed to better anticipate unsafe conditions and prevent potential scenarios that could threaten worker safety. In addition, the data can be used to prevent equipment failure that could create unsafe conditions or costly downtime.
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Safety
Shotcrete testing promotes mine safety and productivity
S
hotcrete or sprayed concrete is a special concrete designed for spraying onto a surface, as a construction material. With shotcrete application as a ground support system ever-present in the mining sector, a major requirement is to determine when it is safe to reenter beneath freshly sprayed concrete. Shotcrete application in recent times is mainly through remotely controlled spraying machinery, thereby avoiding the safety concerns of labourers working under potentially unsafe, unsupported
of the available testing methods. This presents an issue in which measurements may suffer with accuracy and could result in workers entering potentially unsafe zones, or, alternatively, if measurements underestimate strength, the projects could then suffer from a decrease in productivity. Examples of commercially available strength tests include:
Beam End Testing rock. However, machinery and labourers must still be able to continue work before the shotcrete has reached full strength. Therefore, the need to determine when the shotcrete has gained adequate strength is of paramount importance. Authorising reentry is not purely based on safety but is also driven by the demand of productivity. For this reason, it is common that shotcrete is at a very early age when reentry occurs. Currently, there is no widely preferred method or technique for measuring the early-age strength of shotcrete lining, which is largely due to the limitations
The beam end test involves the crushing of sprayed beams by the use of a small hydraulic pump which applies direct compression until failure occurs through platens of a certain dimension. The method provides the most reliable way of determining in situ early strengths. Studies indicate that the device is generally believed to have an excellent accuracy in terms of strength measurement. In addition to this, the hydraulic operation of the device ensures that there is little operator dependency in running the test. Earlier studies describe the test as a robust,
Shaftlining Australia forms part of the StrataCrete group and provides state of the art robotic ground support solutions to both the Australian and international mining industry. With a strong focus on safety, our custom built technology provides automated control solutions which reduce project risk by eliminating personnel entry in shafts. The recent commissioning of our world first robotic rock bolter has put the company at the forefront of innovation and design in shaft support and compliments our current remote controlled shotcrete capability. Shaft Lining Australia is proud to offer this technology to our clients and can be custom built to suit your requirements. Additional information is available on our website or please feel free to contact us below.
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simple, and low cost method that can be used in underground environments and in laboratory situations.
Soil Penetrometer The Australian Shotcrete Society (AuSS) describes the soil penetrometer as a device consisting of a sprung flat-ended steel plunger calibrated to indicate the approximate compressive strength of the soil/concrete when forced into the surface. A major issue of the device’s measurements is the accuracy of the readings it produces. It is widely reported that the soil penetrometer suffers drastically in overestimating the strength parameters of early-age concrete and shotcrete. Although there are numerous shortcomings in the soil penetrometer test, it does have certain advantages that account for its widespread use in Australian mines. In addition to this, the relative cost of the device is minimal, as is the labour requirements associated with its use. Perhaps its most
important advantage is that the device is virtually nondestructive allowing it to test the shotcrete’s lining directly without compromising the safety and capacity of the support system.
Meyco Needle Penetrometer According to AuSS’s description, the needle penetrometer consists of a steel needle at the end of a spring that is forced into the surface of setting concrete. In assessing the attributes of the needle penetrometer, it is evident that its application in measuring shotcrete strength certainly has some beneficial uses. It has significant accuracy, which is of paramount importance when assessing shotcrete early-age strength. The problem is that this accuracy is, firstly, not widely accepted by all and, secondly, suffers from a limited accurate testing range.
Echo Testing/Shear Wave Velocity A relatively new method and technique
for the measurement of shotcrete early-age strength is by using echo testing and shear (P-wave) velocities. Recent studies of echo testing reveal promising advancements in the area. The issue with early-age testing is that variations in mix designs can alter the readings. Furthermore, the nature of echo testing necessitates consideration for additional variables that can influence results, such as surface profile variations and the impact source. Apart from this, the technique requires technical expertise in understanding the testing fundamentals. At present, it still seems that more research and development is needed in the area before the method could be widely used in the mining industry. Therefore, in terms of current early-age shotcrete strength, this method is only proposed as a complement to, rather than a substitute for, other direct methods. Source: Early-Age Strength Measurement of Shotcrete: Abbas Mohajerani, Daniel Rodrigues, Christian Ricciuti, and Christopher Wilson
july 2016 51
FINANCE
Metals streaming funding
expected to rise By Andrew McLean, Partner and Lewis Page, Graduate, Herbert Smith Freehills
P
ersistent volatility in commodity prices has made it increasingly difficult for mining companies to access traditional forms of debt and equity financing. In order to fund the capital for new projects or to expand upon existing projects, mining companies are having to source alternative and creative financing solutions such as metals streaming. It is expected that the number of Australian streaming transactions will continue to rise while traditional sources of financing remain difficult to obtain. To that end, the number of streaming companies entering the Australian market will also increase while traditional royalty companies may look to expand their existing portfolio to include streaming. Metals streaming is an agreement between a mining company and an investor to purchase a percentage of the company’s future production at a fixed price below market value. The future production subject of the sale (known as a ‘stream’) is often the by-product of the company’s main operations – for example, precious metals which are the by-product of the company’s base metal production. The stream is acquired by the investor making an upfront capital payment (or a series of payments) to the producer in exchange for an agreed fixed price (plus inflation) per unit of production for the life of the mine, or a defined and likely protracted period of time. The upfront payment is often structured as a deposit. Effectively, the streaming agreement allows a mining company to monetise its future production prior to production commencing.
How is metals streaming different from royalty agreements? Although somewhat similar, streaming and royalty agreements can be distinguished. 52 july 2016
Streaming involves the sale by the mining company of physical product, whereas under royalty agreements the investor is entitled to share in the future revenue of the producer’s project. In addition, a royalty investor will typically make no ongoing payments to receive its share of revenue, while a streamer will be obliged to make ongoing payments for product delivered (albeit generally at a discounted price).
What are the key benefits of metals streaming arrangements? Streaming arrangements may offer a number of benefits for mining companies. Principally, these include the following: • Like royalty agreements, streaming can be employed alongside other forms of financing arrangements. As the stream often comprises the by-product of the mining company’s core product, the mining company may be able to access funds from the streaming agreement without reducing its broader borrowing capacity. • Streaming transactions can be reached in a time effective and low-cost manner. To this end, streaming arrangements are also similar to royalty agreements. • The agreement itself will generally be less restrictive on the company compared to other traditional debt instruments, allowing the company to retain greater control over the project’s overall operations. • Companies are afforded greater flexibility under streaming arrangements compared to traditional debt products as the company is only obliged to deliver the product when it is produced.
What are the pitfalls of streaming? The key issue associated with streaming
arrangements is that the mining company may inadvertently price the streamed product too low, thereby failing to benefit from subsequent increases in its market value. Unless the mining company is able to negotiate optional buybacks to purchase all or part of the stream, the investor may accrue a significant windfall without having to compensate the mining company for that benefit. This issue may be prevalent where the market for the streamed product is particularly volatile. Similarly, if the mining company has agreed to sell a fixed percentage of the streamed product, the investor may receive a windfall where the mining company’s production is higher than expected or where new discoveries are made. As a preventative measure however, mining companies may seek to cap the volume of the product to which the investor is entitled.
Recent streaming transactions Recent streaming transactions include the agreement entered into by Anani Investments Limited (a wholly owned subsidiary of Glencore) with Silver Wheaton (Caymans) Ltd (a wholly owned subsidiary of Silver Wheaton Group) in 2015, under which Silver Wheaton agreed to pay US$900 million to Anani Investments in addition to paying 20% of the spot price per silver oz delivered. In return, Silver Wheaton will receive 33.75% of silver produced until the delivery of 140 million oz and 22.50% of silver production thereafter for the life of the mine. In early 2015 KBL Mining Limited entered into a streaming agreement with Quintana Mineral Hill Streaming Co. LLC under which Quintana agreed to provide US$23 million to KBL over several instalments in exchange for the right to purchase a percentage of KBL’s base metals, gold and silver production.
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Offshore
The hidden gold in the 2016 budget for
companies with a turnover of up to $10 million
(Provided this Liberal initiative can get it through the Senate) By Mark O’Donoghue, CEO and Founder of Finlease Although much publicity has surrounded the reclassification of small business which now extends to companies with a turnover of up to $10 million and the ability of those businesses to claim 100% depreciation on assets purchased of less than $20,000, these are “small bikkies� compared to what is available under the accelerated depreciation allowances that now become available to them under The Small Business Depreciation Pooling Provisions. Owners of businesses in such capital intensive industries as transport, civil and related fields should take heed of this depreciation bonanza which has just become available to them (effective July 1, 2016). Under the Small Business Depreciation Pooling Provisions,
54 july 2016
company owners can actively elect to place all of their assets in a pool for depreciation purposes and claim an overall depreciation rate of 30% diminishing value (DV). This was previously a benefit only afforded to companies with a turnover of less than $2 million but has now been opened up to much larger organisations. The best way to explain this is via the following example: Chatswood Cranes runs a fleet of 10 cranes, has a turnover of $5 million p/a, a profit of $1 million p/a and a resultant tax bill of $300,000 p/a. The written down value of their cranes is $4 million and they have been historically depreciating their cranes at 7.5% DV ($300,000) p/a. which was expensed prior to the $1 million profit.
FINANCE
Leasing - an essential
financing tool for a dynamic economy
E
quipment finance in Australia consists of three broad product groupings; leasing (both finance and operating leases), hire purchase and chattel mortgage. Hire purchase was introduced on a widespread basis in Australia in the 1920s, initially for the financing of motor vehicles. Lease finance utilisation rose strongly from the late 1950s as the acceptance of the philosophy of leasing broke down earlier attitudes against this non-equity form of financing, and leasing is now a mature financial product having been offered as part of a portfolio of financing techniques for over five decades. Chattel mortgage has developed as a major form of equipment finance only in the last decade initially as a consequence of a GST anomaly which has been rectified. The wider use of hire purchase and leasing was undertaken by finance companies in the 1950s and early 1960s. Since that time, a broad range of financial institutions moved to include equipment finance in their product range. Today the predominant equipment financier groups are domestic and international banks, captive financiers, finance companies, fleet leasing companies and rental companies;
56 july 2016
lessees/borrowers include all private and public industry sectors. Equipment finance is provided for most capital equipment items (provided they are used for commercial purposes) and for periods typically ranging between two and five years, and longer for higher value equipment; interest rates are competitive and are usually fixed for the period of the contract. Providing the commercial use test is met, lessees can usually claim the full amount of the lease rentals as a tax deduction; the lessor, as owner, usually claims the depreciation and any investment incentives – the latter in the case of the Investment Allowance (when applicable) is claimed by the lessor. For hire purchase and chattel mortgage, the borrower is the party entitled to claim capital allowances and interest costs where allowable. For income tax purposes there can be no option in a lease contract to enable the lessee to purchase the leased goods
at the end of the term. The lessee may however re-lease the goods at the end or make an offer for them. In any event the finance lease will provide for the lessee to indemnify the lessor for any loss on sale for less than the residual value; this provision aims at ensuring that the lessee properly maintains and uses the equipment and, from a pricing point of view, keeps any equipment technological risk implicit in the credit risk. In the early years most equipment finance was motor vehicle-related and even today around one half of business is for motor cars, trucks, vans, motor buses and coaches; aircraft, ships and heavy earthmoving vehicles comprise another sizeable end-use, and in recent years Electronic Data Processing and office equipment have grown strongly. For most part, the national taxation system has been relatively neutral as between the various equipment financing options, with each alternative able to compete on the basis of its appropriateness and flexibility for the
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FINANCE particular investment and financing need. Paradoxically the long history and high utilisation of leasing in Australia has sometimes led to a misunderstanding of its attributes; however, it is now generally accepted that leasing’s tax benefit transfer capacity provides real benefits for industry, particularly small businesses and startup operations. In terms of taxation, leasing captures and crystallises taxation deductions and incentives available within the system and within government policy, focusing their effect on the area where it will have the most impact: reduced cash outflow for the lessee. When Government inquiries urge action to develop ‘sunrise’ industries or to smooth the restructuring of other sectors or industries, it is ironic that the financing technique best suited to achieving both these objects (leasing), has sometimes been inappropriately and disparagingly described as ‘tax shelter’. A business just starting out or one in the process of restructuring is unlikely to be generating current year taxable income. In these circumstances tax deductions for depreciation or investment incentives do not achieve their desired policy effect – rather they simply add to carry-forward losses. Through leasing, the lessor can claim these deductions against its taxable income, crystallise the benefit and pass it on to the lessee in the form of the tangible incentive of reduced cash repayments. Unfortunately, the aggregation of such deductions in the books of relatively few lessors can be misunderstood and can result in the contemplation of restrictions. This occurred in the area of financing unit trusts for property and construction projects when the Tax Commissioner issued tax ruling IT2512 which restricted the ability of such trusts to transfer the benefit of certain deductions. The broader question of tax benefit transfer was also raised in the debate which surrounded the ruling; equipment leasing was however exempted from the Government’s general policy to restrict such tax 58 july 2016
effective financing. The rationality of this exception was highlighted in the Bureau of Industry Economics’ paper ‘Tax Losses and Tax Benefit Transfer’. Leasing is an essential financing tool for a dynamic and competitive economy. If from time-to-time a new application or lease product development tests the legislative or taxation framework, this should be seen as a healthy and necessary sign of an innovative financial system. A development in the lease market over the years has been the offering of variously structured operating leases. These were in part a response to Accounting Standards which require lessees, for corporate disclosure purposes, to capitalise their finance leases onto their balance sheets; operating lease commitments on the other hand, are expensed in the usual way and need only be disclosed by way of footnote to the published accounts. Initially demand for the operating lease product was limited to the larger corporations and companies with overseas, especially US, parents. Over the years this has changed, with a wider spectrum of private and public sector lessees now utilising the product. Operating leases are a prominent feature of the fleet leasing industry, often accompanied with fleet management services.
The lessor’s perspective From a lessor viewpoint, for the lessor to retain the advantages and disadvantages of economic ownership of the equipment it is necessary to be confident that the value of the equipment when returned by the lessee will achieve a resale price which is predictable. This ‘equipment’ risk is reduced where there is a sufficiently deep second hand market for the particular equipment to allow reliance on reasonable estimates of sale values. When this equipment resale value risk is added to the credit/client risk (whether the lessee will meet the commitments) and indeed the manufacturer and goods risk (whether the manufacturer/supplier will continue to provide servicing and the goods prove reliable), it is obvious that compared
In terms of taxation, leasing captures and crystallises taxation deductions and incentives available within the system and within government policy, focusing their effect on the area where it will have the most impact: reduced cash outflow for the lessee.
with a traditional finance lease, operating leases are more complex. Any legislative or other regulatory measure which results in a move to operating leases out of balance with the market’s capacity to cover underlying equipment risk will have prudential consequences, as well as forcing that risk, currently implicit in a finance lease, to be explicitly priced in the operating lease. Operating leases provide unique benefits to lessees, and constitute a vibrant segment of the Australian equipment finance market.
Equipment finance market New business volumes exhibited consistent improvement in the three years to 2012, when the annual volume reached $39.4 billion, but declined in 2013 to $37.0 billion. There was a general improvement in business in 2014 to $37.7 billion, and a further slight increase to $37.9 billion in 2015. However, new business levels are likely to remain subdued over the coming period, consistent with the prospects for overall business credit growth. Source: The Australian Equipment Lessors Association Inc.
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GOING GLOBAL By Kerry Chamberlain, Wind Energy Update
Oil giants move into the offshore wind sector
60 july 2016
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resh wind power commitments by oil majors have prompted more oil sector suppliers to seek cross-sector synergies in vessel and equipment delivery. Royal Dutch Shell confirmed on 7 June 2016 it had created a ‘New Energies’ division to group together activities in the wind, solar, biofuels, carbon capture storage and distributed energy sectors. Shell currently has $1.7 billion invested in low carbon energy projects, including eight U.S. onshore wind farms. The New Energies division is to spend almost AU$300 million per year on the exploration and development of new opportunities, the company said in its report ‘Shell: Energy Transitions and Portfolio Resilience’. “Our focus will largely be on capital-light plays, in areas that share aspects with our core businesses, such as location and ease of fit with existing infrastructure,” it said. Offshore wind looks set to form a key part of Shell’s renewable energy drive as the firm has announced it is part of a consortium which is bidding to build two 350 MW wind farms in Dutch North Sea waters. A consortium of Shell, Eneco and Van Oord announced 12 May 2016 they had made a bid to build the Borssele I and II plants on a site 22 km off the Netherland coast and the consortium has selected MHI Vestas as the preferred wind turbine supplier. Paul Reynolds, Partner at energy consultancy Everoze, noted that offshore wind is not a new sector for Shell. “This is full circle for them, having initially been involved with London Array and building Egmond ann Zee in the Dutch North Sea, before pulling out of the sector in 2008,” Reynolds said. Rising interest in the offshore sector is driven by proven project
deployment and impressive cost reductions from technological advancements and economies of scale and series. The U.K. offshore wind sector is on track to achieve its target of generation costs below AU$171 per MWh by 2020 and Europe’s largest wind suppliers and developers have said costs could fall below AU$120 per MWh by 2025. “This means offshore wind will be fully competitive with new conventional power generation within a decade,” the firms said in a joint statement 3 June 2016.
Key players Other European oil operators have already demonstrated that oil and gas companies can successfully transition into the offshore wind space and help to accelerate development in the sector. Denmark’s DONG Energy was formed out of the Danish oil and natural gas company in 2005 and the company has reoriented its business around offshore wind to become the leading offshore wind installer in the world by capacity. DONG Energy has installed 3 GW of offshore wind power capacity and aims to reach 6.5 GW by 2020. In June, the company completed the world’s largest stock market listing so far this year. DONG Energy CEO Henrik Poulsen believes the offshore wind sector will “be flooded by competition” as oil giants increasingly move into the sector, he told the Wall Street Journal May 13. “We’re talking about huge companies with significant capital and execution power,” he said.
Owners’ share of installed European capacity Norway’s state oil and gas company Statoil has also been an active developer in offshore wind projects and is pioneering floating wind farms and offshore wind storage projects. While low oil prices have prompted some oil majors firms, such as Spain’s Repsol, to curb renewable energy plans, oil firms have generally increased their involvement in offshore wind, Reynolds said. The combination of sustained low
oil prices and a maturing offshore wind sector has meant that “the risk reward balance between oil and offshore wind is (at present) shifting towards offshore wind,” he said.
Oil hedge Oil majors’ growing commitment to the offshore wind sector has led to more oil sector suppliers and service companies moving into the wind sector. “There are plenty of other companies out there who may now have a greater incentive to try and move across,” Reynolds noted. Companies such as Foundocean, 3 sun and JDR Cables all started out in the oil and gas sector and are now established names in offshore wind and new firms have entered the market in recent months. In April, Italian oil and gas contractor Saipem announced its first offshore wind contract when its semi-submersible crane and pipelaying dynamic positioning vessel Saipem 7000 was selected to perform the lift and mating operations for floating wind turbines at Statoil’s Hywind project in Scotland. “Most of [our] recent [contracts] are related to gas and renewables infrastructure, highlighting Saipem’s exposure to activities that are not directly impacted by the oil price,” Saipem said in a statement. Norwegian contractors Eidesvik Offshore and Olympic Shipping secured their first offshore wind contracts this year and in June Bibby Offshore announced it had entered the offshore wind cable installation market and signed a framework agreement with Ecosse Subsea systems to develop technologies for offshore cables.
Vessel challenges A key challenge for firms crossing over into the offshore wind sector is the high number of installations. A wind farm might typically use 50 to 100 turbines and project capacities are generally rising, with DONG Energy’s giant Hornsea One project set to install up to 240 turbines.
For vessel contractors, the higher number of individual units can translate into more revenue per project and a less piecemeal work schedule, than in the oil and gas sector. There also remains a lack of specialised vessels for offshore wind projects. As developers pursue larger projects, the supply and design of vessels will be key to controlling costs, both in construction and operations and maintenance (O&M) activities. “Even though there are vessels originated in the oil and gas market now entering offshore wind, they are limited to a few vessel types,” a spokesman for Fred Olsen Windcarrier told Wind Energy Update. There are currently no oil and gas crew transfer vessels involved in offshore wind projects and only a handful of floating crane vessels, the spokesman noted.
New opportunities In one example of new synergies in offshore projects, vessel supplier DUC Marine Group launched on 9 May a new multipurpose support vessel which is designed to work on wind turbines as well as oil platforms. The vessel is 55 metres long, uses a dynamic positioning system and hosts two knuckle boom cranes. “We found that current vessels are either too small with insufficient capacity and possibilities, or too big and therefore not cost-effective. So we decided to design a ship with exactly the right size, capacity, versatility and cost efficiency,” DUC Marine said in a statement. According to Reynolds, technologies designed to improve dynamic positioning in the oil and gas sector could also be developed to reduce offshore wind costs. “There has been less obvious progress in foundation installation and there could be a gap if companies can prove that installation using pure [dynamic positioning], as opposed to anchor spread, is achievable and cost-effective,” he said. “[Oil and gas] vessels are potentially well positioned for this.” july 2016 61
INNOVATION
CSIRO senior engineer, Dr Rueben Rajasingam, says that the drag reduction technology offers a sustainable and cost-effective solution for industrial pumping.
Taking the ‘drag’ out of industrial pumping
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new CSIRO technology that takes the energy-sapping ‘drag’ out of industrial pumping has been adopted by major mining company Glencore’s Minara Resources following a successful full-scale trial. The drag reduction technology can save mining companies millions of dollars on energy and water use each year, while boosting their productivity. Minara’s technical and engineering manager, Paul Wiltshire, said they installed the technology to improve the feed ore slurry pumping capacity at their Murrin Murrin nickel operation in Western Australia, which was overloading as they increased their ore throughput. “We were able to identify a low-cost installation point with good potential for reducing the slurry drag effect in the piping system,” Mr Wiltshire said. “The technology freed up capacity, which meant we could avoid an expensive plant upgrade to meet throughput demand.” It was an immediate success and the drag reduction technology is now part of Minara’s toolkit when considering other slurry pumping constraints on site. Almost all mineral processing plants need to transport slurry – a semi-liquid 62 july 2016
mixture that can include water, ore and other material – through pumps at various process steps. CSIRO senior engineer, Dr Rueben Rajasingam said that reducing water content, power demand and pumping inefficiencies always results in significant operational and cost improvements. “The thicker the material, the more friction or ‘drag effect’ you get which makes it hard to pump and more energy and capital-intensive,” Dr Rajasingam said. “Water is typically added to dilute the material before pumping, but only as a last resort because the more water you add the less throughput you achieve.” This technology combats both these challenges: it introduces a thin, uniform and long-lasting ring of fluid between the slurry and the inside of the pipe so that thick material can be efficiently pumped without friction at a high throughput. The technology is simple, cost-effective, easy-to-implement and could be applied to a broader range of industrial processes where there’s a dewatering aspect that results in a sludge, slurry or paste that needs to be transported, such as in construction and waste management. “For example, the construction
industry is increasingly needing to pump concrete up higher and higher to build skyscrapers and so this could be a costeffective solution for them to overcome challenges like blockings,” Dr Rajasingam said. For the mining industry, the technology means that variation in the ore’s viscosity or water content, can be easily managed. It also offers a solution for backfill – a common mine site remediation technique where materials are pumped back into an exhausted open pit or underground mine to return ground stability and regenerate the site. “The idea of using a lubricant is not new, but we’ve come up with a better technology that overcomes issues with coating uniformity,” Dr Rajasingam said. “The way we introduce the coating creates a thin, uniform sheath around the slurry, whereas other methods coat sporadically.” Other CSIRO minerals processing innovations include a better performing agitation system called Swirl Flow, the world’s leading technology for rapid mineral analysis QEMSCAN, and new environmentally-friendly processes for the recovery of gold, nickel and cobalt.
The holy grail of caving
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n understanding of the way rocks flow under the force of gravity is essential to developing underground cave mining methods that are both safer and more productive. Rio Tinto is harnessing this fundamental scientific principle to drive the development of cutting-edge technology. In large-scale underground operations, even a 10% reduction in waste can represent hundreds of millions of dollars of value.
On track Rio Tinto has partnered with CRC Mining and technology supplier Elexon to develop a cave monitoring system that will increase the safety and profitability of underground mining operations. Dubbed ‘Cave Tracker’, the system is designed to help measure the movement of fragmented rock under gravity and manage its flow through controlled extraction. Andre Van As, general manager, Geotechnical Engineering & Cave Management in Rio Tinto’s Copper & Coal group, said the technology addressed a key challenge of underground cave mining. “While we have previously been able to monitor the area surrounding the cave closely, very little has been known about the movement of the rock inside the cave itself,” said Andre. “We have been able to place markers in drill holes within the cave and measure where and when they come out on the
extraction level, but we have not been able to measure what happens in between.” “This lack of real-time information has commonly led to part of the orebody being left behind or diluted.” The Cave Tracker system uses a series of trackers and detectors placed in and around the orebody to track the rock threedimensionally inside the cave as it moves in real time. The system can transmit signals through 200 metres of rock and will continue working remotely for many years, even as it is impacted by the rock deep underground. “We can only manage what we can monitor, and with Cave Tracker, we can now see into the cave and monitor the mass flow of caved rock,” Andre said. “That means we can make better decisions to manage the flow of ore and waste, improving our profitability. In largescale underground operations, even a 10% reduction in waste can represent hundreds of millions of dollars of value. The ability to monitor the flow of rock within the cave truly is the holy grail of caving.”
The driving force Underground cave mining, also known as ‘block caving’, involves blasting and removing a large area of rock far beneath the surface to create an underground void that causes the rock mass above to break under gravity. This eventually forms a cavern of fragmented rock which is then removed from an underlying extraction level.
After the initial blasting, the use of the natural stresses and gravity to break the rock – rather than explosives - allows large underground orebodies to be mined more cost-effectively than other underground mining methods done on a large scale.
Revolutionary technology In addition to delivering significant productivity improvements, the technology also has the potential to make cave mining safer. In some cases, large voids can develop within the cave, and if a large enough air gap collapses, air can be pushed through the mine with incredible force. The Cave Tracker system, in conjunction with other cave monitoring systems, can be used to detect the formation of air gaps and manage them before they pose a safety threat. “This technology is a breakthrough that was nearly a decade in the making,” said Craig Stegman, chief Growth & Innovation officer in the Copper & Coal business. “Perseverance and collaboration is revolutionising underground mining and unlocking significant value.” Following a proof of concept led by Rio Tinto and CRC Mining at Northparkes Mine in 2007, the journey to design, develop and perfect the technology has culminated in a full-scale trial at Argyle’s underground diamond mine in Australia that began at the end of 2014. Once testing is successfully completed, Cave Tracker will be deployed at Rio Tinto’s Oyu Tolgoi Underground Project in Mongolia. Source: Rio Tinto Mines to Markets
july 2016 63
Opinion
Safety and health a top priority for the resources sector I
n a time when commodity prices have dropped and companies are cutting costs, one constant remains as the resources sector’s top priority – safety and health. As the peak representative body of the sector, the Chamber of Minerals and Energy (CME) understands the significance of the issue and what it means to our member organisations. No one wants to work in an environment not deemed to be safe. As a world leader when it comes to industry best practice, West Australian resources sector companies are at the forefront of technology and innovation. One of the most effective uses of innovation is through solving safety and health challenges, ensuring safe workplaces for the tens of thousands of industry employees in Western Australia alone. For the 12th year running, the Chamber of Minerals and Energy has recognised the important work occurring all over the state by resource sector workers, through the 2016 Safety and Health Innovation Awards.
With nearly 50 submissions to this year’s Innovation Awards, the judges had plenty of new processes, systems and programs to consider when it came to deciding this year’s best innovations in the occupational health and safety space. Nine finalists have been announced recognising innovation in three categories: engineering, systems and people. The finalists range from innovative programs to ensure workers are out of harm’s way right through to technical solutions for engineering challenges. These innovations will be shared at a special industry forum to be held in August, with winners to be announced at a gala cocktail event on 3 August. The CME congratulates all finalists and looks forward to seeing their presentations at the Innovation Awards forum. The finalists are: Engineering Category Karara Mining Ltd - Micro-Mist Dust Suppression System for Primary Crusher Run-of-Mine Bin Monadelphous Group - Gridmesh Installation Tool
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64 july 2016
Rio Tinto - Venturi Waste Removal System Systems Category Barminco - Mobile Interaction Safety System Barminco - Interactive Virtual Reality Safety Training System Mount Gibson Iron - Unmanned Aerial System for Abandoned Pit Lake Sampling at Tallering Peak People Category BGC Contracting - ‘In Safe Hands’ Program BHP Billiton Iron Ore - ‘Improving Mental Wellness of Employees’ Rio Tinto - ‘Improving Safety through Breakthrough Methodology and Solutions’ For more information on each of the finalists, visit www.cmewa.com Reg Howard-Smith Chief Executive The Chamber of Minerals and Energy of Western Australia
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