Analysis: James Price Point ... dead before dying

Political and environmental pressure on the state government, whichever side wins on Saturday, will have no effect on the future of the onshore gas processing centre proposed for James Price Point in the Kimberley – the global gas glut has already killed it.


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Tim, A few comments on this. As late as 2008, I recall that there was a KPMG white paper on global gas demand projections that had the US as a major net importer of LNG by 2020. When Exxon bought shale drilling wildcatter XTO Energy in 2009, few people in the WA gas industry (that I talked to) seemed to understand how far reaching the prospect for plentiful tight gas in North America could be for Australian LNG, even as locals like Queensland Gas and Santos were exploring for CSG in the Cooper Basin here. Instead, those in the local industry noted that tight gas was notoriously harder to manage over the long term because of much more rapidly declining pressures at the wellhead over time, relative to conventional gas wells. But the game changer came when BHPB purchased Petrohawk and Chesapeake in 2011, around the same time that fracking methods hit prime time. BHPB has taken a pounding in the short term over dry gas oversupply, but now this oversupply is driving not only a renaissance in manufacturing (which Alcoa is desperately trying to keep for themselves, just as in WA, natch) but is also driving a push for North American LNG exporting. Current Henry Hub prices could rise a bit and still pose a serious risk to Australian LNG prices into Japan, once the ability to export is gained and producers start building liquefaction infrastructure. The reason WA gas is so expensive is not only because LNG prices are currently high, or that liquefaction plants are expensive to build: the part that everyone seems to miss is, government at all levels these days restricts energy commodity development and manufacturing/minerals processing industries both directly and indirectly; directly, by artificially constraining the amount of development of oil, gas, and resources commodities, and indirectly, by taxing local energy production and consumption by industry. The result is artificially high input costs to manufacturers and mineral processors that make these businesses increasingly subeconomic to operate. When new capacity is built in emerging market countries (e.g., China for alumina refining), even poorly run plants in those markets are nonetheless far cheaper to operate than they are here in Australia. Instead of removing red and green tape to build and operate more manufacturing and minerals processing, government gives in to rent seeking by way of demanding domestic reservations of commodities, which then disincentivizes mining investment. The resulting supply constraint ensures that commodities are priced artificially high, which eventually kills off manufacturing and minerals processing businesses - and all the jobs that those businesses support. Now if you *really* wanted to drive a stake into the heart of domestic manufacturing and minerals processing, all you'd have to do is artificially raise energy input and consumption costs by way of carbon taxes or carbon credits. Oh, wait...

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