The rise and rise of Australian wussonomics


Over the weekend the mainstream press finally ran an article on the disaster unfolding around QLD’s LNG industry. Not surprisingly, it came from Michael West, one of the few journalists left with a brain as well as cojones:

…It is constantly reported that the gas export terminals have ” long-term oil -inked contracts”. But what exactly does this mean?

…Financial analyst Bruce Robertson says the huge move down in the oil price is likely to trigger contract renegotiations. “We have already seen Sinopec opt for such a renegotiation with Origin Energy’s APLNG consortium”.

…Serious doubts have arisen lately over the ability of the biggest customer for Origin Energy’s $24.7 billion liquefied natural gas project to take delivery of the gas. Market has had it that the Chinese buyer may seek to slow the ramp-up of production, causing a hit to Origin’s 2015-16 earnings.

As in the coal cycle, history is repeating in gas. The three major export LNG markets are Japan, Korea and China. Confounding the forecasters, demand from all three countries has declined, not rapidly risen.

…”In Asia, as in Australia, energy efficiency has also taken hold and lowered demand,” says Robertson. “This is a far cry from the scenario of ever-expanding Asian demand that was spread by the industry prior to getting their rushed approvals for their Gladstone LNG plants.”

Yes it is and as a result the $80 billion plunged into the Curtis Island white elephant is the single largest capital mis-allocation in Australian history.

But at the same time we got the following from the Australian Financial Review:


“When you do something as big and innovative and imaginative as this, don’t imagine it is going to be easy – it’s not easy,” Knox said from Santos’s Brisbane office ahead of Friday’s sailing of the first GLNG cargo from Gladstone.

“We’ve risen to that challenge, we’ve demonstrated we can do it. I think what will happen over the next 20 years people will say, well thank goodness Santos did that, it was a great outcome for the company.”

The halving of oil prices over the second half of 2014 has slashed the revenues Santos and its GLNG partners can expect to receive from initial exports, given LNG prices are directly linked to crude prices. JPMorgan energy analysts this month cited likely rates of return from GLNG at just about 6 per cent at current oil prices, about half the hurdle return rates typically used in the industry.

“If the price stayed at $US50 that would be right, but I don’t believe and I don’t think our investors believe the price will stay at $US50,” Knox says in response.

As I pointed out Friday this is factually inaccurate rubbish from a journo on a junket to Curtis Island. These are cash returns not returns on capital. Once you add the cost of building the plants and infrastructure they will make amortized losses for as far as the eye can see. Add the debt taken on to do it and the firm’s involved have all but been destroyed.

Now, before I lose you in the boring details of frigid gas let me bring you back to the point of this post. The failure to account for the unfolding LNG disaster is symptomatic of a much wider malaise in the Australian economy. It is the rise and rise and rise of outright, irredeemable and poisonous wussonomics. Let me explain.


The urban dictionary defines a “wuss” as:

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.