When Petronas pulled the plug on its West Coast LNG juggernaut, some angry voices blamed government for nixing the project. Jim Stanford writes that Canadians have dodged a bullet and should be grateful the project is dead. Consider what happened in Australia:
To better understand the bullet that Canada dodged, consider Australia, a place where resource developers face far less onerous regulatory constraints. When gas prices in Asian markets surged past $15 per MMbtu in 2009, and again in 2012, gas producers everywhere salivated; but in Australia's case they could act on that greed quickly. Several massive LNG projects were built, virtually simultaneously, all aiming to cash in on premium Asian prices. Environmental and fiscal hurdles were modest; and Indigenous populations in Australia have little leverage to negotiate. A new right-wing government sweetened the pot by cancelling a modest carbon tax in 2014.
The outcome was a madcap construction boom that puts the Klondike gold rush to shame. Close to $200-billion (Australian) was spent on LNG projects over the next several years. In Queensland, three massive plants were built at the same time, on the same island. The impact of this mayhem on construction costs was both enormous, and predictable. The mother of all cost overruns was racked up at Chevron's Gorgon plant offshore Western Australia. Its final price-tag (a whopping $72-billion) was almost 50 per cent over budget. (Just imagine the recriminations if any public sector agency ever blew through its budget by a similar margin.)
The economic carnage from the building boom continues to be felt throughout Australia:
The short-lived boom affected the whole course of Australia's economy, generating inflation, putting upward pressure on interest rates, and contributing to a skyrocketing currency -- that in turn sparked massive deindustrialization (including the complete shutdown of Australia's auto industry). The plants are now on stream (though most have suffered repeated operational breakdowns), long before a single shovel hits dirt in Canada's LNG play. A triumph of free-market efficiency, right?
Once again, the Apostles of Unfettered Capitalism have created a disaster:
It's not just gas producers paying for this enormous miscalculation. Every Australian energy consumer is also paying. Unlike Canada, gas exporters don't have to prove that exports are surplus to domestic needs. Hence domestic prices more than doubled with the diversion of so much supply to exports; electricity prices also skyrocketed (because of gas-fired generation costs). Government isn't reaping any benefit, since the sweet royalty deals inked to accelerate LNG projects require virtually no royalty payments until capital investments have been paid off. That will likely never happen -- meaning Australians effectively gave away this gas (without royalties) to Asian consumers, many of whom now pay less for it than Aussies do.
How many times will this scenario need to be repeated until we wake up to the fact that neo-liberal economics is snake oil?
Image: TechnoKontrol.com
9 comments:
A textbook case of why the economic witchdoctors should be ignored. The resources of the Lucky Country working against the interests of the people and the only one really profiting is the Asian masses, mostly in India. Little known fact India has hundreds of mothballed gas plants and switch between coal and gas depending upon market price. Sorta a windmill of carbon plan.
We still face the problem of environmental degradation caused by these sources of power, Steve. In the end, economic growth has to come to terms with the demands of a finite planet.
In BC we were told (by the previous BC govt) that exporting LNG will create thousands of jobs, pay off BC's debt and clean the air in China. If rubbed on the scalp it will cure dandruff.
In Australia, Hugh, LNG produced a lot of economic dandruff. Apparently, the Aussies are still looking for a cure.
I a point I often make is that Rifkin in his Hydrogen economy book, estimated in 1998 that for $200 Billion the US could change its economy to a Hydrogen base. Shortly thereafter Bush spent a couple of trillion in Iraq to shore up the carbon base.
For $94 Billion I wonder if Australia could go total solar and wind. There is an Australian company selling the best commercial flow battery on the market, so the sun dont allways shine and the winds dint always blow nabobs of negativity can try and get a charge out of that.
Turns out the worst way to build a smart grid is to pay a surpluss to homeowners. This discorages the use of battery storage and keeps the monopoly with the finger on the button.
A couple of decades ago it was coal, anthracite coal much in demand by China for steel-making. The Chinese toured the Pacific Rim signing deals with one country after another. The "deals" stipulated a generous price that was subject to changes in market prices. And so BC built the massive Tumbler Ridge coal project along with expanded port facilities.
What no one realized at the time was that China was locking up most of the major coal resources in the Pacific Rim and that it could use this dominant position to manipulate coal market prices - downward of course. The prosperity our leaders imagined to be "baked into" the long-term contracts were just that, imaginary. By the autumn of 2015 there were no coal mines still operating in Tumbler Ridge, no wealth pouring into the town, no royalties flowing into the government's coffers. Three of those mines have since been acquired by American owners giving the town some hope of a future but the boom town days are gone forever.
China did a similar play with natural gas. Having Pacific suppliers falling all over each other to sell LNG to China they were able to drop prices. When Vlad Putin went to Beijing to flog Russian nat gas via pipelines, Vlad wanted European gas rates. The Chinese simply refused, came up with their own discounted price and forced Putin to accept it. The Russian economy was wobbly enough that Putin couldn't risk the shock of failing to get a Chinese gas deal. He was easy meat for the Boys from Beijing.
Australia keeps dancing to China's tune. I wonder how Beijing must see Canberra.
The oil industry still has its finger on the button, Steve.
Again, Mound, it's a case of not understanding people who don't look like you.
Mound, just like the Emperor saw his top advisers, dick-less.
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