Northern Territory gas pipeline “a white elephant”

Issue 
The $800 million gas pipeline planned for the Northern Territory is economically unviable.

A report released by the Institute for Energy Economics and Financial Analysis on May 19 has said that the $800 million gas pipeline planned for the Northern Territory is economically unviable, to the extent that it is described as the “whitest of white elephants”.

The pipeline, known as the North East Gas Interconnector (NEGI), has been the crown of the NT Country Liberal Party's economic strategy in the lead-up to the August election. The pipeline is designed to transport the vast shale gas reserves in the NT from Tennant Creek to Mt Isa for sale to the rest of the world.

A report released by the Institute for Energy Economics and Financial Analysis on May 19 has said that the $800 million gas pipeline planned for the Northern Territory is economically unviable, to the extent that it is described as the “whitest of white elephants”.

The pipeline, known as the North East Gas Interconnector (NEGI), has been the crown of the NT Country Liberal Party's economic strategy in the lead-up to the August election. The pipeline is designed to transport the vast shale gas reserves in the NT from Tennant Creek to Mt Isa for sale to the rest of the world.

A report released by the Institute for Energy Economics and Financial Analysis on May 19 has said that the $800 million gas pipeline planned for the Northern Territory is economically unviable, to the extent that it is described as the “whitest of white elephants”.

The pipeline, known as the North East Gas Interconnector (NEGI), has been the crown of the NT Country Liberal Party's economic strategy in the lead-up to the August election. The pipeline is designed to transport the vast shale gas reserves in the NT from Tennant Creek to Mt Isa for sale to the rest of the world.

About 90% of the NT's land mass is slated for gas exploration. Environment groups, farmers and Traditional Owners have criticised the planned gas bonanza for its potential health and environment impacts, but this is the first time that the promoted economic benefits have come under attack.

The bottom line, according to the report, is that it is bloody expensive to extract gas in the NT and global prices for gas are too low for anyone to want to buy it.

Bruce Robertson, author of Pipe Dream: A Financial Analysis Of The Northern Gas Pipeline, said in the summary: "The Northern Territory shale gas industry is in its infancy and the reality is that production of this onshore gas would come at significantly higher cost than even the east coast onshore gas export industry, which is already too expensive in a global context."

In his presentation at a launch of the report in Darwin's Railway Club on May 19, Robertson said that gas could be extracted from the NT at a cost of around US$9 a gigajoule (GJ). At the moment, gas is bought in Queensland at $6 a GJ, and world prices are at $2 a GJ.

At current prices, shale gas would be sold at a loss on the global market and all indicators are that gas will have even lower prices in the future.

Robertson said: "The shining hope of increased royalties through the establishment of a shale gas industry appears to have blinded the Northern Territory government to economic reality.”

According to Robertson, the global gas market is glutted — there is a massive supply of gas that outweighs demand — and this is likely to be the case for a long time.

China, which is currently the main proposed consumer of NT gas is unlikely to need it. Recently, the Chinese government announced substantial subsidies for its own gas extraction industry and has an interest in developing energy independence from the West.

Before the charges of unfair economic practices are raised, it should be noted that the NT government has spent more than $6 million promoting gas extraction in the NT.

Europe, the site of other potential customers is currently supplied by the substantial gas resources of Russia and projected to continue into the future.

Shipping liquefied natural gas (LNG) to consumers is unlikely to be real in the modern world, according to the report. It states: “With the technology changing the way we produce and consume energy the growth of Chinese imports of gas is far from assured. The Russian pipeline deals ensure that any growth in the market over the medium to longer term will be filled by piped gas not LNG.”

The upshot is that demand for natural gas is unlikely to rise any time soon and, as a result, no one will buy NT gas at the prices necessary to cover costs.

Even if the product were wanted, the report also questions whether the benefits would flow to anyone whose land had been taken for gas extraction. The nature of the pipeline creates a monopoly for the company that provides it and the nature of the contracts the company has entered into means it will be rewarded even if the gas is unprofitable.

The company awarded the contract for the pipeline is Jemena, a joint Chinese-Singaporean company. The report notes that Jemena paid no tax in Australia, despite accruing profits, before December last year. It did this through a complex accounting arrangement that classed investment from its parent company as a “loan” with an interest rate more than double that of rates normally charged.

Essentially, the NT government has granted a monopoly to a Chinese-Singaporean company, which has a record of dodging taxes.

“Even if gas prices were to unexpectedly increase, profits from any NEGI gas production would flow offshore due to the unregulated monopoly awarded to Jemena …

"The deal between the government and the project owners would allow for an unregulated and largely untaxed monopoly," the report says.

“The Northern Territory government has gifted two overseas governments the right to run a natural monopoly that is unregulated and the pipeline can charge whatever tariffs it sees fit. If the development of the gas resources of the Northern Territory's onshore fields is to proceed, this monopoly service provider will accrue the majority of the economic benefit.”

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