Shell’s beleaguered, ultra-costly Prelude LNG project has been hit with another blow. Its workforce has gone on strike, forcing the floating LNG plant to suspend loadings at a time of record-high spot prices.
The labor dispute has been running since June 10 with a combination of one-hour work stoppages and partial work bans. Last week, when the workers announced a “mooring ban” on LNG carrier arrivals, Shell was forced to shut down production.
Union coalition Offshore Alliance recently informed Shell that it plans to extend its strike through August 4, and Shell’s management has responded with a lockout. Beginning July 25, Shell plans to cease pay for workers who have been taken off the facility. It is already removing nonessential staff and sending them back to shore.
“Following the production shutdown caused by the protected industrial action, we cannot continue to operate in the same way,” a Shell spokesperson said in a statement. “As a consequence, we will be resorting to lock outs as the mechanism available under the Fair Work Act. Once the lockouts are in effect, people will no longer be paid if they are not mobilised to the facility.”
However, Offshore Alliance has warned that a lockout could have consequences beyond the negotiating table. “If Shell is actually serious about a lock-out it will significantly increase the chances of breakdown [on board],” Australian Workers Union leader Daniel Walton told Financial Review. “Shell will also encounter major issues with the regulator and struggle to maintain its licence to operate.”
Shell says that it has offered its unionized workforce a pay raise of $20,000 on top of their average current salary of $140,000. However, the union says that it also wants job security guarantees in order to prevent Shell from outsourcing work to contractors. Its 150 members have turned down the pay offer by a wide margin.
The shutdown takes Prelude’s output off the global market at a time of particularly tight supply. Prices in East Asia are at historic levels approaching $40 per MMBtu, up threefold year on year.
Prelude’s nameplate capacity is about 3.6 million tonnes per annum, but in reality, the troubled facility has rarely lived up to its expected potential. It has been plagued by breakdowns, including a fire and three-day power outage last December. That accident prompted Australia’s National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) to shut Prelude down until Shell could prove that it had made safety improvements.
Labor-management relations may have been colored by December’s power outage. Crewmembers told WA Today that they had had to manage human waste manually because the sewage system was shut down, and without power for transfer pumps, they had to shuttle cans of diesel around by hand to keep a backup generator running. Offshore Alliance spokesman Brad Gandy called the accident “unforgivable” and said that “similar failures” had occured on board in the past. “Clearly Shell has not learned from its past mistakes,” he said at the time.