It’s funny watching the growing brouhaha at the AFR over Australia’s growth prospects. Not really funny as such or satisfying either, but having predicted it, a certain amount of schadenfreude is unavoidable.
Anyway, with that trumpet-blowing behind me, today’s example is Michael Cheney, Chairman of Woodside:
Australia is likely to fall off a “growth cliff” when the resources investment boom ends in the next few years because the economy is not becoming more productive, says Michael Chaney, chairman of National Australia Bank and Woodside Petroleum.
Economic growth was likely to slow to less than 2.5 per cent after 2015 because of burdens on business, including overlapping state and federal environmental regulations, and Labor’s industrial relations system, which made the workplace less flexible, along with other problems, he told The Australian Financial Review.
Mr Chaney’s warning is particularly significant because Woodside will soon make a decision on whether to build the $40 billion Browse gas project at James Price Point in Western Australia.
“Every major project under evaluation, including Browse, has to confront this issue,” he said. “Unless you are highly productive in Australia, projects will go offshore and construction jobs will go offshore.”
Then there is another piece from David Knox, Santos CEO:
Santos chief executive David Knox has warned that new investment in Australia’s liquefied natural gas industry will “dry up” in 2017 unless the country is cost competitive, urging increased collaboration among oil and gas producers to save costs.
Mr Knox believes producers need to work together to improve the competitiveness of the industry in the face of cheaper locations overseas.
In a speech to the Australian Institute of Energy conference in Sydney on Monday Mr Knox points out that Australian LNG projects currently being built are already 80 per cent more capital intensive than those in production. “A lot of this cost is labour, with the cost of Australian labour double that of many of our competitors, and productivity in most cases lower,” he says.
We get it, labour costs are too high. But labour is only a serious issue during construction. For decades afterwards, there is hardly any labour. And Knox gestures at that broader problem today by calling for many other areas of cooperation between local producers.
The fact is, Australian LNG is under assault from a global gas glut that is driving down LNG costs, prices and margins. The assumptions of the current Australian LNG boom were based upon boom time extrapolations. They overpaid for assets, are overpaying to build all at once and have assumed too high a prices and return. The dollar is higher for longer than anyone expected and the unconventional gas boom is extraordinary everywhere but especially so in the United States. In short, Australian LNG, like Australian iron ore and coal producers, underestimated capitalism.
Subscribers and trialees at Macro Investor are treated to an oil and gas special this week that helps clarify this context.
But back to today’s executive prognostications, what do we make of it? Maybe I’m wrong but it looks to me like Cheney is softening us up for the shelving of Browse. I do not expect any further LNG approvals and rather than waste a crisis the Woodside Chairman is sensibly enough passing the buck.
