Who’s to blame for the LNG debacle?

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You get some idea of what’s wrong with the Australian economy today in the AFR editorial on the LNG debacle:

But any shortage of gas for the massive processing “trains” on the three Curtis Island projects would intensify the crunch from falling world oil prices, which ultimately set internationally traded gas prices. And it would underline concerns that Australia has missed a major opportunity to develop its gas reserves when oil prices were high, in part due to repeated failure by state and federal governments to forge any overall energy sector strategy in the face of environmental zealots and farmers blocking exploitation of reserves on the basis of mostly trumped-up scare campaigns.

Australia has exhibited little of the get up and go of the American shale gas and oil revolution that has helped revive the US economy. Here, national energy policy has been a mass of confusion, in large part reflecting Labor’s overreach on reducing carbon emissions. Victoria and NSW have locked up most of their states against development on the basis of irrational fears put forward by a handful of activists and whipped up by radio personality Alan Jones. And Labor’s industrial relations backsliding encouraged the trade unions to ratchet up the cost structure of the capital-intensive LNG industry.

OK, let’s try to tease this out a little:

  • the gas shortage is the result of dirty, smelly greenies that have held back development by terrifying governments
  • we’ve shown no get up and go
  • carbon abatement is to blame
  • the unions are to blame for cost overruns

Now, consider the alternative explanation. Government’s eyes lit up when a bunch of bubble-pumped gas capitalists went mad overpaying for untested assets. Rather than regulate the roll-out or tax it appropriately, government went all in on “get up and go” development.

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The end result was massive cost blowouts as the capital bubble denuded the supply of every input in sight, and mass community protest erupted as untested technology suddenly began filling its water-supply with mysterious chemicals to make up the shortfall of gas forgotten in the mad rush to develop.

The carbon price of course favours gas development, but it’s to blame. Let me say it again, it’s to BLAME!

And in closing, I note that the blast begins by acknowledging the simple fact that international markets set the price of gas not local ones, thus rendering the entire argument beyond that point redundant.

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The LNG debacle is certainly in part government’s fault, because it sucked deeply on a gas bubble blown by industry flunkies and their bizarrely irrational apologists in the press.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.