Pilbara gas plant price jumps $420 million as COVID hits supply chains

WA Today
Peter Milne, May 27, 2022

The cost to build the controversial Perdaman fertiliser plant in the Pilbara has increased $US300 million ($421 million) months after Italian giant Saipem slashed its earnings forecast by $1.5 billion following a review of its construction projects.

In January Saipem – which is in a 50/50 joint venture with South African-owned Clough to build the gas to urea plant – said its profit margin on many projects had deteriorated “due to the persistence of the pandemic and the current and prospective increase in costs of raw materials and logistics.”

The plant proposed by privately-owned Perth-based group Perdaman has drawn criticism from conservationists for its greenhouse gas emissions and from traditional owners of the Burrup Peninsula near Karratha who want no further development where more than one million examples of ancient rock art are located.

On Friday Saipem and Clough announced they would build the 2.1 million-tonne-a-year urea plant for $US2.7 billion ($3.8 billion), 12 per cent more than agreed in a contract signed just over a year ago.

The bill for Perdaman to build its company-defining plant could rise again due to provisions added to the contract to “manage any potential further deterioration in market conditions.”

Construction is dependent on Perdaman receiving project financing that will now be more difficult to obtain due to increased uncertainty over the final cost.

A tight labour market in the Pilbara presents risks to construction costs on top of the global problems Saipem has experienced.

As well as needing finance, the project is also subject to a federal government review of the adequacy of its plans to protect Aboriginal heritage.

The Burrup Peninsula area, known as Murujuga to traditional owners, has been nominated for world heritage listing for its vast collection of rock art, or petroglyphs, produced over about 50,000 years.

Perdaman’s plans were strongly backed by the previous federal government that provided funds to the WA government to build supporting water and port infrastructure.

The project is backed by contracts with Woodside to supply gas from its Scarborough project and Incitec Pivot to buy the urea.

Perdaman chair Vikas Rambal said the new contract was significant.

“The coronavirus pandemic and latest war in Ukraine has taught us an important lesson about the food security of our society and our over-reliance on imports,” Rambal said.