Parties take note: our future can be gas-fired
by: GEOFF ELLIOTT
From: The Australian
August 13, 2013 12:00AM
THE resources boom is not over. There are transitions and hard policy work to be done, sure, but Kevin Rudd's mantra that the boom is over risks creating a self-fulfilling narrative beyond its obvious political intent of providing some cover for the parlous state of the budget.
A key takeout from this year's Australian American Leadership Dialogue in Sydney over the past few days -- at which there were plenty of Australian and US chief executives -- is that Australia will, of course, need to find some other growth engines given the slowdown in commodity prices. But it's not as if the LNG and resources industry is just going to fold its tent and walk away -- which is the kind of mental picture painted of late by the Prime Minister.
Again, the energy and resources industry finds itself becoming a political football.
A more positive message from the Prime Minister is what can Australia do to ensure the boom continues -- via productivity improvements and driving down Australia's emerging status as one of the world's most expensive places to do business.
The debate around the LNG industry is particularly salient.
The concern has been that as Australia moves from the investment phase to the production phase of the LNG cycle -- a cycle that has seen $200 billion spent already, mostly in the northwest of Western Australia, along with supersizing the economy around Gladstone, Queensland -- there will be fewer jobs since running an LNG plant is less intensive than building one. And, less investment.
But the premise is wrong. The LNG boom is not over -- it's only Australia's capacity and labour constraints that are opening the door for competing countries to tap the LNG boom.
In fact, demand for LNG over the next 20 years is expected to soar.
According to a recent McKinsey report -- one that is being used by many a gas executive around the world in scenario planning -- global LNG demand is expected to almost double to 470 million tonnes a year by 2030.
"Existing projects and those already under construction will provide 250mtpa of this demand," McKinsey says.
That leaves a whopping 220mtpa-a-year shortfall, according to McKinsey's numbers. In other words, more than 10 Gorgon LNG projects. Gorgon has cost more than $50bn to build -- in rough numbers that's a possible $500bn in capital expenditure on the table over the next 15 years or so.
The world is racing to meet that shortfall. According to one senior LNG executive, Australia has a 12- to 24-month window to seize the initiative -- otherwise other countries will rush to fill the void -- not least the US, where an abundance of gas is turning it into a gas exporter. East Africa is also a region to watch. Australia's capacity is about 89mtpa and planned and speculative projects add a further 55mtpa.
The message at the Australian American Leadership Dialogue is the country needs to get its act together fast. Less talk about the end of the boom and just how we continue to capitalise on the world's ongoing thirst for energy.
As McKinsey notes: "Existing and committed projects in Australia are expected to contribute $520bn to the economy over 2015 to 2025. These projects will add 2.6 per cent to Australian GDP, or $5500 per household per year, support 180,000 jobs and increase the tax take by $11bn, or $1100 per household. Additionally, if all projects currently on the drawing board are realised, this would create a further capex investment of more than $180bn.
"This would contribute an additional $320bn to the economy, which is 1.5 per cent of GDP, or $3300 per household, create 150,000 new jobs, and increase the annual tax take by $5bn, or $400 per household over the period 2015 to 2025."
Call that a case for evidence-based policy. The PM should turn the end-of-boom mantra on its head -- or at least the Coalition should. Australia has a gas-fired future if it wants it.
Geoff Elliott is the business editor of The Australian and has been a regular participant in the Australian American Leadership Dialogue.
http://www.theaustralian.com.au/business/opinion/parties-take-note-our-future-can-be-gas-fired/story-e6frg9if-1226695903709
Parties take note: our future can be gas-fired by: GEOFF ELLIOTT...
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