Business

There's no denying economics in predicting Gladstone bust

LAST week's article about what boom workers will face when the stream of money ends was intended to alert people to what will happen in Gladstone, not what might happen.

It caused a measure of angst among some readers who, in their responses, indicated unfortunately that they are in denial.

Think of what happens with your barbie. Inert gas from a bottle is ignited by a spark and the gas becomes usable fire.

Economics is all about responses to stimuli which, like that spark, become catalysts.

In Sydney house prices rose by 14% last year, Melbourne 10%, Perth 9% and Brisbane 5%.

The question is why and the answer lies in the catalyst. In trying to bring the value of the dollar down, encourage consumer spending and avoid another "recession we had to have" the Reserve Bank has installed historically low interest rates.

That's been the catalyst and it has worked: house and unit construction is now at eight-year highs and the dollar is nearing where it should be. 

You don't have to be Einstein to recognise the catalyst that has seen Gladstone property prices fall by 9% in the December quarter alone.

In economist-speak, house prices are a leading indicator: they in effect predict future economic developments.

On the Gladstone situation, think of a clock we'll call the Gladstone clock - no different to the Newcastle or Wollongong clocks more than half a century ago, for example.

Looking at Curtis Island, what has happened is that a resource has been found for which there is a market: recoverable coal seam gas, which needs a catalyst to convert it into liquid form and a port from which to export it.

That's our start point at 12 o'clock. From 12 o'clock to 1 o'clock, we have the planning and approvals stage for the building of the facilities needed in the process.

Then comes the high-cost construction phase from 1-9 o'clock, then the mature construction phase or construction denouement from 9 o'clock to 11 to be followed by the maintenance, operational and management phase taking us to 12 o'clock and onwards.

My point is that what is happening on Curtis is that LNG production start up is nearing and the labour-intensive construction phase is hurtling toward completion.

According to announcements reported to have been made recently by the major construction contractors, the construction phase will finish by mid-year. We are quite a bit past 9 o'clock on our Gladstone clock.

Commendably, these employers of huge numbers of workers are trying to get the message through that the fat lady has begun to sing. 

Like Newcastle and to a lesser extent Wollongong, Gladstone has a bright future. It adds value to bauxite, it has become the gateway for central Queensland thermal coal mines to Asia, and it is about to add value to coal seam gas.

In fact, it is and will remain a cornerstone in our state's future economic wellbeing. All the city has to fear are the vagaries of global pricing for its exports - and that's a cyclical thing over which it can have no direct control.

That said, the frenetic boom days for workers here are nearing an end. Estimates I have read indicate that only about 500 workers will be required by each LNG producer in the maintenance, operational and management phase.

Bob Lamont is director of Corporate Accountants situated at the Night Owl centre. He can be contacted on boblamont1947@gmail.com.

Topics:  bob lamont, curtis island, economy, gladstone business, lng




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