With media reporting hamstrung by journalist's career interests, loyalties to respective media mastheads and ,at the more shrill end, the agendas run by some regional, parochial and self serving axes to grind, my view is that the Australian public is being poorly informed by the material dished up on the subject of gas exploration and development in New South Wales. I would like to start a debate between all parties as I recognise that the forces marshalled on both sides of the argument have important and valid points of view.
It is said that NSW is facing a gas crisis. In 2015/2016 the country will start to export gas from Gladstone to various countries in Asia. The amounts are impressive.....my layman's understanding is that some 20 million tonnes per year will be exported. The price for a gigajoule of gas that is paid in Asia is substantially higher than in Australia. Why then would those businesses ,who have invested hundreds of billions of dollars in Gladstone and Queensland ,sell to the domestic market at the current low prevailing price when they could get a higher price by shipping the commodity off shore and get between two and three times the price overseas? Why, having made enormous investments in plant would they not seek to obtain a return that would justify that investment?
Clearly, just from an economic activity point of view, the investments made in Gladstone and Queensland have had and will have multiple benefits for the people of Queensland. There will be many families whose breadwinners are now and will be securely employed so that they can raise their families without the nightmare of unemployment. There will be many children of those families who enjoy a stable home life and can get on with their lives productively. There will be many Australians who proudly feel that they are making a contribution to both their families and the nation. In addition, both the Federal and State and Governments will enjoy heightened revenue streams from income tax from the added employees, the corporation tax from profitable businesses and royalty streams from development of the Australian resource which is the birthright of us all. There will be a benign multiplier effect from the activity of the major corporations to a range of businesses right down to the local corner shop. Governments will be able to more easily invest in vital services such as health and education.
Of course, economic activity is not everything. In particular, if the by-product of this economic activity was the destruction of the environment then it is questionable whether it would be worth it at all. There are various degrees of environmental damage that might be caused by this economic activity. If it stretched to the contamination of water aquifers such that the water could no longer be drunk or that ingestion would cause cancer or other serious illness then , I for one, would be prepared to forego the benefits of exploiting this resource. The stark choice is easy and it is this simple formula that is often put as the clarion call of those not in favour of gas exploitation. Unfortunately, for all those interested in the nature of reality, be they left wing or right wing, I can vouch with certainty that it is not simple. Indeed, I treat with scepticism many conclusions which would suggest otherwise.
Whilst it is hotly contested whether gas is environmentally more friendly than proven alternative sources of energy I can offer only an intuitive judgement to this question. I think this is where informed debate would help the likes of me. For my part,one only has to witness, whether directly or on television, the suffocating smog in Beijing to realise that the effects of mass burning of coal is environmental suicide. I am not so shortsighted as to think that coal alone is entirely responsible for this. Motor vehicle pollution, weak environmental legislation and high population concentrations will also be a significant cause. Nevertheless, coal will make a substantial contribution to the total. It is plausibly argued that the reason that Asia is now so keen to import gas is that it will partly substitute coal as a source of energy and bring health benefits to millions if not billions of people.
Oddly then, there are environmental arguments both against and in favour of gas exploitation on Australian shores. Rarely do I hear ,from those who propound the noble cause that the environment should be the cornerstone of policy , and at a more mundane level, that the environment is what we should protest for , a fair contrast between the environmental impact of gas exploitation at home versus the environmental benefits of that exploitation overseas. Beware the noble cause, beware the wooly thinking, beware the self interest. Undoubtedly , and it is again the nature of the difficulty of our reality , we cannot be sure what the environmental outcome of gas exploitation will be. And if we are truly humble, we cannot be sure of much.
One thing that we can be fairly sure of is that the price of gas in NSW will increase substantially. Offsetting the myriad economic benefits in the Queensland gas industry are the threats to broader industry along our East coast. If we are not careful, what might appear as an economic miracle in Queensland will turn into an economic nightmare. There is talk that , as gas will soon be drawn overseas , not only will the price reach parity with overseas , but there will be little incentive for Queensland or South Australia to channel its gas to NSW. The nightmare scenario is not just limited to a 200% to 300 % increase in the price of gas, but also , in periods of peak demand, the actual failure to supply gas. It has been reported in The Australian that "The South Australian government has indicated it will not intervene in the free market to ensure supplies to NSW instead, while Santos has talked of the wholesale gas price rising from $5.50 to $12 a gigajoule." Just imagine the disruption this would cause to domestic and corporate life in NSW. Just imagine ,if such disruption occurred , how businesses would abandon NSW and move elsewhere, how businesses would be forced to close and all the resulting unemployment that would follow.
Perhaps, you might say, it looks like the economic benefits will only arise in the Queensland gas industry and for those that have a connection with that industry. The broader society on the east coast will suffer and it will be questionable whether an overall net benefit will exist. Perhaps, in hind sight, it would have been better to do nothing and Australia could have continued to enjoy cheap gas and its manufacturing could have continued to enjoy a comparative advantage compared to Asia. This is a moot point for which I have four thoughts. Firstly and most urgently, the wheels are already in motion .There is no going back. We should look forward, plan and brace for the future. Secondly, there are old familiar arguments that fit this situation, the arguments against trade tariffs which , before the early 1980s, gave the Australian economy an artificial advantage by protecting domestic industry from cheaper imports. Over time this had the effect of creating a lazy economy which was not exposed to adrenalin inducing foreign competition. In addition, being molly coddled, Australian industry was famed for being inward looking and producing low quality ,high priced products. As Keating said in favour of lifting barriers, "As in all nations before it, the pursuit of trade and competition has instilled in Australia a thirst for greater efficiency at home and a larger dominion abroad." That gas is a critical raw production input ,as is cheap labour in Asia ,may undermine this argument, but it is worth considering nonetheless. Thirdly, I recall from my high school days my rudimentary training in economics revealed to me the theory of comparative advantage. In crude form, if two farmers make a living from growing apples and oranges and ,all other things being equal ,one farmer is more productive at growing apples and the other farmer is more productive at growing oranges then the whole community will benefit if the farmer who grows apples more productively concentrated entirely on growing apples and likewise with the farmer growing oranges. This is a very simple version of the point for which I would most likely get a D minus in an economics exam....but it makes the simple point that if Australia can produce gas better and cheaper than Asia then when goods come flooding back to Australia there should be an overall benefit. As said before, reality is far more complex , but the argument is worth bearing in mind. Lastly, and I am sure that there are many other arguments that I have missed, the effect of increased trade with Asia is to bind us closer together. Like it or not, this is the Asian century. We either play a positive role and embrace our friends or we sulk in the corner.
So there we have it, economic benefit versus environmental risk. So many clustered arguments and interests on either side all seeking attention and persuasive power. But this is no academic debate. The sluice gate is about to open and if we are not starting to panic now we soon will be. What can we do, on either side of the argument, to make the passage of water calm and not a deluge? My first thought is that Government should show the lead, should plan, should make good policy and should execute that policy efficiently. State of origin rivalry looks, at this stage, as if it will repeat itself in the gas fields as Queensland is far ahead of NSW . Indeed, NSW has broken down , before it has barely started, with a spluttering engine.
The role of Government is to put in place and referee the rules of the game. The purpose of these rules are to protect the environment and also to prevent flagrant opportunism at the expense of its people, to prevent fouls, cheating and dangerous tackling. There is a line of thought that the Government could legislate that a portion of gas production be reserved for domestic consumption thereby reducing the upward pressure on prices. But the rules, if they are over administered ,can choke the game and ,if unfairly judged ,can destroy the enjoyment of it.
The current NSW Liberal government came to power in March 2011. In the three years since then , the NSW gas industry has barely more than stagnated. As outlined in my letter to Minister Roberts (which follows in the next posting) , there are some disappointing but understandable reasons for this. Just at the time when the NSW gas industry should be forging ahead to make up for lost time we encountered what I can only describe as one of the lowest points in NSW Government in the last 50 years. As I describe in my letter to Minister Roberts , his summary suspension of Metgasco’s drilling licence was not only in breach of the clear regulations, ensconced in statutory law, that his own department is charged to uphold. As menacing, he publicly announced that he was referring a corporation to ICAC on unproven and untested grounds. Well, in plain terms, you just don't do that ! ICAC is an important body and where there is plausible suspicion of Government and administrative fraud it is a mark of our society that we have a body to take our considerations to. But, to bleat this across the airwaves on the steps of the NSW parliament, to trample over reputations, to call the kettle black - and all in the brilliance of public glare is just....is just....is just extraordinary! And, like some voracious wild beast the media fed on it carcass and all. There was no critical reflection in the media on whether this diminutive Chamberlainesque figure was right, whether he was upholding the law ,whether the blackening of names before proper judgement was fair.
The truth of the matter is, we need sober and fair debate. We must at least begin to prepare. If it is found that even stricter regulation is required there is time for that when production begins. But , I would repeat what others more knowledgeable than me have said- that the NSW gas industry is already the most highly regulated in the entire world. Let us debate then , on both sides , fairly and sensibly. Let the battle begin!
Four more things- I declare I have a financial interest in whether the NSW gas production industry is allowed to prosper as I am a shareholder in Metgasco. Additionally, I have never been motivated to rise up for a cause. This is the first time. Thirdly, I thought that the reporting of the ABC in the matter of Metgasco's licence suspension did not live up to my expectations and I have communicated this to Mediawatch as follows in the next but one posting. Finally, despite all, what a GREAT country Australia is that you can say what's on your mind without being lynched for it. Perhaps more than any other this final thought is the most important of all.
