Another LNG story this afternoon as the AFR stirs the pot further on Browse, the second last of the LNG “mega projects” (the other being Arrow LNG).
Incoming federal Resources and Energy Minister Gary Gray is set for a clash with newly restored West Australian Premier Colin Barnett. Gray favours Floating LNG (FLNG) where as Barnett insists on a terrestrial processing plant at James Price Point:
…Shortly after the announcement of the new cabinet on Monday Mr Gray told The Australian Financial Review he maintained his views on FLNG presenting an opportunity for WA but declined to comment specifically on Browse.
“What I’ve actually said is I see an international opportunity for Western Australia in the development of FLNG,” he said.
“As the decision maker in the next lease for JPP and consequently in that position it’s not appropriate for me to comment specifically on that project.
“I do think it’s appropriate for us Western Australia to embrace the best technology and the best solutions to grow sustainably our oil and gas sector. In that context my comments were made several weeks ago.”
There appears to be no good reason to force a less efficient development path for Browse if it jeopardises the project. The FLNG solution means much of the investment goes instead to Korea, which dominates FLNG ship building. Presumably as well the WA government will lose tax revenue because much of the spending will not occur, whereas the federal coffers will still benefit from offshore processing via the Petroleum Resource Rent Tax.
This highlights the issue with Australia’s growth model as the mining boom winds down. Sure, Browse could go ahead as an FLNG project and some of the profits (perhaps 20%) will remain in Australia. I’m not sure what the PRRT take would be but even if it is substantial it is not productive capital, just government receipts.
You build it, it gives you ongoing tax revenues and improves the country’s cash flow but what do you do then? The same as we’ve done in the past. Cut taxes, boost house prices, grow consumption and squeeze non-mining tradables further out. It’s houses and holes in action.
Presumably that’s why Barnett wants it on the ground. So there is a legacy of jobs and real economic activity. But should Shell pay for the stupidity of our macroeconomic settings?
