Recently, Professor Philip Adams of Victoria University unleashed the Centre of Policy Studies model of the Australian economy upon the question of what higher or lower gas prices would do to the economy and the results were startling.Recall as you read this that with LNG contracts now at $9.96mmBtu, removing the costs for liquifaction and shipping will give you a local gas price around $4GJ:
Construction of the new LNG facilities stimulates national employment, but when building is complete, the direct stimulus ends. In the long-run, the new LNG production has a negligible impact on employment, but lowers the real wage rate.
The explanation of macro effects begins with the impacts on the national labour market. Figure 2 shows percentage deviations away from base case values in national employment (persons employed) and in the national real wage rate.
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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.
