February 28, 2016

Australia's high cost, less than "regionally superior" Future Submarines

Prime Minister Turnbull and Defence Minister Payne (on left of fin) at sea. The Turnbull Government is suffering much political and financial inertia - so launching the 2016 Defence White Paper provides a much needed "achievement" (Cartoon by David Rowe via AFR Feb 25, 2016).
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The Turnbull Government's 2016 Defence White Paper (DWP) (PDF 10MB) includes breathtaking dollar figures calculated to win votes for the imminent Election. But unfortunately the submarines will not  be “regionally superior” (claimed on DWP pages 19, 21, 90, 91 and 115). They will, however, be the most expensive conventional submarine in world history.

It is unfortunate that the upfront cost of Australia’s 12 Future Submarines will be unusually high for mere conventional diesel-electric submarines, at A$55 Billion or more (see Table below). As they will be conventional they will not be “regionally superior.” The "superior" accolade goes to the nuclear propelled attack submarines (SSNs) belonging to China, Russia, (in future India), France, UK and the US that frequent or at least transit the Asia-Pacific (frequently called "Indo-Pacific") Region.

In terms of China - perhaps the most likely future enemy - China’s Type 093 SSNs will remain superior in the critical areas of range, speed and fully submerged (not loud diesel) operation. China's  future Type 095 SSNs (likely to be launched before 2030 (long PDF 10MB, December 2015, CRS Report RL33153 to Congress, page 87)) will be even more regionally superior than Australia’s shorter range, slower, noisier (when on diesel) and more vulnerable (when snorting) Future Submarines. Friendly India is also planning to build SSNs before 2030. So Australia's "regionally superior" claim will turn out even more wide of the mark.

This less than "superior" submarines will not come cheap. Australia will be paying the highest cost ever envisaged for merely conventional submarines. Australia’s News.com points out, February 25, 2016: “The ongoing cost over the lifetime of the 12 submarines could be as much $100 billion, putting the total cost at $150 billion. Defence officials and industry experts consistently say acquisition is only one third of the cost.” 

The A$55 Billion upfront cost of the 12 Submarines is from the “Future Submarine Program” items on "Table 6: Summary of key investment decisions from FY 2016–17 to FY 2025‑26." below. This is on page 89, 2016 Integrated Investment Program

Program title
Program Timeframe
*Approximate investment value
Future Submarine Program – Evaluation
Scheduled for approval†
Less than $100m
Future Submarine Program – Design and Construction
2018–2057
>$50bn
Future Submarine Program – Weapons and Systems
2018–2045
$5bn–$6bn
*  “The figures in the table cover the acquisition element of the programs. There will be additional investment in whole-of-life sustainment and operating costs for each program. All figures are calculated on an out-turned price basis ^.”

^ Out-turned dollars methodology recognises that the dollar is worth less over time. Out-turning a project budget takes into account the planned increases in overall Defence spending due to inflationary pressures. It is very difficult to estimate out-turned price as this involves:
- estimating inflation in Australia and in the US and France and
- estimating estimating exchange rates of the A$ with US$ and Euro.
- all over a period out to 2057. 

The Federal Government has been careful to make only vague statements that the submarines will be built in South Australia. This keeps open the option of an overseas build if (as seems apparent) the Australian costs are too high. If built in Australia:

- Australia will need to go to the expense of building a Future Submarine shipyard. This is when Japan, Germany and France have perfectly good submarine building yards in their own countries (which enjoy economies of scale)

- an Australian build may involve another 200% over world price burden, as is occurring with the AWDs

- many other Australian companies will need to be created and integrated into the 12 submarine build. Many will then close down at the end of the project - as happened with the Collins Project.

 I wonder how cheaply the submarines could be built in Japan, Germany or France?
 This would involve adding:
 the A$50 Billion Acquisition cost
 + A$6 Billion for Weapons and [Combat] System
Maybe also consider the A$100 Billion whole-of-lfe sustainment estimate.
Perhaps the submarines will all be assembled in Australia or all overseas.

Pete

9 comments:

Anonymous said...

50 billion? Wow. You could comfortably buy 12 SSNs for under AU$25 billion - half the price.

(The 6 Barracudas cost AUD$ 13 billion, including combat systems and 5 years of training/logistics, add another ~$1.5B for each additional hull).

-HK

Anonymous said...

Harry J. Kazianis thinks selling Virginias to Australia would be a great idea:

http://nationalinterest.org/blog/the-buzz/sale-americas-lethal-nuclear-powered-submarines-15344


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Though I wonder if it would work out any better than Canada's attempts to purchase
SSNs back in the 1980's:


https://en.wikipedia.org/wiki/Canada-class_submarine

http://www.journal.forces.gc.ca/vo8/no4/lajeunes-eng.asp

http://www.canada.com/ottawacitizen/story.html?id=06b557bc-bbc0-4543-90e3-4da70001bef6


====================================


While U.S. opposition wouldn't be a problem, as it was for Canada, you can bet the
anti-nuke crowd (with possible covert Chinese support) would be up in arms over the
issue.

Ztev Konrad said...

The problem with setting such a high price is that the suppliers expectations are now much higher too match. There is a bit of financial wizardry in the $50 bill is really $30 bill at current prices and as mentioned covers support costs into the future, so with the 1:3 ration does that the the present dollars construction budget is around $10-12 billion ?

If the boats are primarily built in Australia, then a massive amount of the equipment will come from overseas. Starting with the high strength steel for the hull. Would Australia even be up to producing such small quantities. ( Continued production of current steelworks doesnt look good)
Then if you look at other items like the torpedo tubes and the handling system, all imported . All the optronics and radars on the telescopic masts, all imported. The propulsion system, gearboxes and propellers , all imported.
A lot of other systems for subs are specific to that sort of vessel and the need for some to be exposed to up to 3-400m working depths and be super quiet. The materials are very specialised alloys and even small changes in spec can lead to either expensive maintenance or even catastrophic failure.
The idea that much could be made in Australia is laughable. Perhaps the galley fittings and the crew bunks!
Really the best that can be hoped for is that major sections are welded and fitted out overseas and minor fitting out and final welding done in the local dockyard.

Anonymous said...

The costs of the Barracuda do not include the costs of the 2 re-fueling events during the submarine 30 year product life. Those are hardly cheap.
The nuclear reactor in the Barracuda is based on a commercial reactor hence the re-fueling needs every 10 years (an improvement on the previous 7 year refueling requirement).
France's commercial nuclear reactors uses MOX at ~30% of the fuel in the reactor core. The use of MOX is to achieve an equivalent enriched uranium level of 4.5% and hence a greater burnt out energy in a LWR. One can debate forever on the advantages and disadvantages of the use of plutonium (aka MOX) as in France or some reactors in Japan but the recent experiences of Fukushima will make it a very hard sell politically anywhere.
KQN

Anonymous said...

But hardly expensive either.

For the Rubis SSNs the cost of the nuclear fuel itself was under ~EUR 60 million every 7 years (including shore based support costs). The cost of each major docking was another ~EUR 120 million, but most of that is unrelated to the refueling and would happen anyway... So call it maybe 200 million for refueling over the course of the sub's life... and of course the fuel is much cheaper to both produce and dispose of.
-HK

Anonymous said...

Building, operating and re-fueling nuclear reactors makes them a rather expensive
proposition.

One of the things that makes the Virginia SSNs so attractive is that they don't need
to be re-fueled, and the technology is improving:

http://www.nationaldefensemagazine.org/archive/2015/February/Pages/NuclearPowerPlantsonNewSubmarinesMayLast40PlusYears.aspx

Quotes:

"The Virginia-class attack submarines were the first to have a core reactor designed
to last the life of the vessel, which for it, is about 33 years."

"The Navy hopes to have the first replacement for the Ohio-class ballistic missile
submarine on duty by 2031. When that vessel is launched, the onboard nuclear power
plant is expected to last its entire 40-year service life."


========================================


Also, other reactor types in development may offer new options for naval propulsion:


http://nextbigfuture.com/2016/02/disruptive-advanced-nuclear-design-is.html


http://nextbigfuture.com/2015/08/lockheed-martin-compact-fusion-reactor.html


========================================


Note that powerplants like this won't necessarily be just for Submarines. As energy-
hungry weapon systems like lasers and railguns are deployed, Navies may show more
interest in rectors like the ones described above for surface ships as well.

Peter Coates said...

Hi HK, Anonymous and KQN

Some very interesting points on nuclear propelled and within that Virginia vs Barracuda.

I'll explore that in an article on Thursday or Friday.

Regards

Pete

MHalblaub said...

Dear Ztev Konrad,

TKMS was able to provide an 80% Australian (+NZ) content for Anzac-class frigates.

Maybe Australia needs a iron work to produce high grade steel. Maybe ThyssenKrupp is interested to build one down under.

Turkey is building their Type 214 with ship sets for the propulsion system.

The less one competitor has knowledge how to transfer work to the building country the more fiasco you can expect. DCNS and TKMS have both huge knowledge doing this. You can expect less Australian content or higher costs from a competitor with less knowledge on that field.

Regards,
MHalblaub

Ztev Konrad said...

TKMS is not building any submarines for Turkey, instead they are paying damages for not having started their part of the program. I dont think this will lead to anything like a local production program for their subs without major cost and time.
The only place the local production has worked is Korea where they have more or less a production program over many years with different models.