Business

Exporting gas will deliver widespread economic benefits

A propane chiller arrives on Gladstone's Curtis Island for the QCLNG project.
A propane chiller arrives on Gladstone's Curtis Island for the QCLNG project.

AUSTRALIA has vast gas reserves and resources. But relatively few Australians understand the remarkable economic opportunity offered by the country's gasfields.

The development and expansion of Australia's liquefied natural gas industry presents an unprecedented opportunity
for national income growth. Committed investment in new Australian LNG projects stands at more than $190 billion.

The new projects scheduled to come into production in the next few years will transform this country into the world's largest gas exporter by 2017 and could generate $53 billion in export earnings between 2013 and 2017.

One of the drivers behind the expansion of Australian LNG is the development of the east coast gas export industry.

Exporting gas from eastern Australia will deliver substantial and widespread economic benefits.

The gas industry's economic linkages are not only broader and deeper than commonly appreciated, but its operations also have wider, welfare-enhancing economic spill-overs.

Regions of Queensland such as Gladstone, Toowoomba and the Western Downs are already experiencing employment and income growth thanks to onshore gas developments driven by the LNG sector.

While this is happening, the Australian gas market, particularly on the east coast, is going through a period of transition.

Several factors - including changing cost structures, demand and supply interactions, and restrictions on the gas industry's ability to access resources - have changed market dynamics facing both producers and customers.

These changes are affecting local industries that use gas in their production processes.

This has led to calls for some gas production to be reserved for local use, at prices below those prevailing in the export market, or for other forms of market intervention.

Such calls have seen the establishment of a domestic gas reservation in Western Australia.

While the impact of the WA scheme is still unfolding, experience from that state and from similar interventions overseas indicates that such policies have unintended adverse economic consequences.

The GLNG site on Gladstone's Curtis Island.
The GLNG site on Gladstone's Curtis Island. Santos

In effect, domestic gas reservation simultaneously places a tax on domestic gas production and a subsidy on domestic gas consumption.

Like all taxes and subsidies, it distorts economic decisions and generates an unequivocal economic loss - one that compounds over time as future investment decisions are affected.

A new Deloitte Access Economics report - The economic impacts of a domestic gas reservation policy - shows that introducing a domestic gas reservation in eastern Australia would come at a significant cost to the nation's economic welfare.

The report's lead author, Deloitte Access Economics partner, Professor Ian Harper, found that introducing a domestic gas reservation in the eastern states would cost the Australian economy substantially.

The amount would build over time and by 2025 would reach $6 billion a year in foregone GDP at 2025.

In recent decades, successive Australian governments have recognised the benefits of freer markets and freer trade.

Their steady removal of market distortions has delivered significant economic benefits to the nation.

A domestic gas reservation would only serve to reverse these gains, according to Professor Harper.

Every one per cent of future gas exports artificially redirected towards the domestic market reduces GDP by an estimated $150 million per year.

"The implicit tax a reservation policy would impose on local gas producers would discourage investment in developing otherwise profitable gas deposits. This would perversely reduce supply for both domestic use and export," Professor
Harper said.

"The implicit subsidy to domestic gas users, on the other hand, would encourage inefficient use of gas where other energy sources would be more efficient."

Using such a policy to interfere in the operation of the market comes at significant cost to the economy.

Many of the arguments for a domestic reservation scheme are based on inappropriate use of input-output modelling that fails to account for the opportunity cost of the inputs used in domestic production. 

A loss of economic value - or opportunity cost - occurs when gas is used in ways that generate less economic value than would be delivered by allowing the market to determine the use of that gas.

This is a net loss of economic welfare to all Australians.

The Deloitte Access Economics report finds that when the flow-on effects are analysed comprehensively - in an economy-wide, general-equilibrium context - the economic losses are unequivocal.

Every one per cent of future gas exports artificially redirected towards the domestic market reduces GDP by an estimated $150 million per year.

This opinion piece is written by the Australian Petroleum Production and Exploration Association's economics director Damian Dwyer. It first appeared in the association's publication Flowline.

Topics:  appea, gas, gladstone, lng, opinion, resources




UPDATE: Hanson Rd open, chemical spillage cleaned from fatal crash

A driver had died in a crash on Hanson Rd.

POLICE investigate the death of a 23-yearold in yesterday's crash.

Gladstone's 'anti-fluoridation cowboys' won with 'fear campaign': Opinion

Dripping Tap: Fears water rates will soar in the coming years. Photo: Griffith Thomas / The Satellite IS160911WATER

This letter writer does not want fluoride taken out of our water

Owner told he has no insurance as Gladstone home burns

The owner of this New Auckland home had been renovating it for three years this October and yesterday it went up in flames.

Three years of renos go up in smoke

Latest deals and offers

Drowning Pool gig review at Max Watt's

Drowning Pool played Brisbane with A Breach of Silence and She Cries Wolf at the Max Watt's House of Music.

Drowning Pool prove that 'bodies' hit the floor when they play

#SaveMarinaJoyce: How ISIS theory took over youtube channel

One young Youtuber accidentally gave rise to a conspiracy theory

Talking whiskey with Jack Daniel’s master distiller

It all comes down to the distillery

SIXTY MILES AHEAD sign with Eclipse Records, prepare new album 'Insanity'

Sixty Miles Ahead sign with Eclipse. Photo Contributed

Sixty Miles Ahead to release new album on Eclipse

Thy Art Is Murder are killing it

See Thy Art is Murder on their killer tour happening right now. Photo Contributed

We talk with Thy Art is Murder about touring, babies, and new music

Date announced for Prince tribute concert

A Prince tribute concert will take place later this year

Queensland's $1 town goes under the hammer today

The township of Yelarbon is up for sale.

Unprecedented auction of town's business centre with no reserve

Work starts on $15M Caloundra apartment building

Turning the first sod at the Aqua View Apartments site in Kings Beach are (from left) husband-and-wife developers Alex Yuan and Stella Sun with construction company Tomkins director Mike Tomkins and Councillor Tim Dwyer.

Developers excited about addition to Kings Beach skyline

72-year-old Coast developer set to start new project

GREEN LIGHT: The Cosmopolitan has been approved for development at Cotton Tree.

Meet the Canberran set to deliver another chapter for Coast suburb

Plans revealed for 1500-lot 'master-planned community'

Precinct will be bounded by Boundary St and Shoesmith Rd

Ecco Ripley sales run sparks prime release

MOVING IN: Sekisui House has announced the release of more residential blocks at Ecco Ripley.

Sekisui House is preparing to unveil more land at Ecco Ripley

The climb is slow but property on the way up

Michael Matusik, director of Matusik Property Insights.Photo Allan Reinikka / The Morning Bulletin

The improvement would be mild when compared to past cycles