ANALYSIS: When Big Coal and Big Gas meet Small Economic Consultants, that’s when the magic happens. Rod Campbell explains.
The love between fossil fuel companies and their economics consultants is deep and pure. Forget Romeo and Juliette, Shah Jahan and Mumtaz Mahal, Marge and Homer. This is the real deal.
Because real love means never having to say you’re sorry, no matter how wrong you were. And boy, have there been some wrong things done and said by the economics consultants.
And yet the money love keeps rolling in from fossil fuel companies.
This week saw the news that embattled gas company Santos had written off their coal seam gas (CSG) project near Gunnedah, in north-west New South Wales. They bought it in 2011 for $1 billion when gas was booming and CSG was yet to become a real political hot potato.
Back in those happier days there was no need for Santos to hype up fictional gas shortages. Just a standard report about money and jobs was meant to do the trick. So Santos booty-called ACIL Allen and they made some beautiful economics together. Kids, look away now.
ACIL Allen said that Santos’ project would:
- Increase employment by 2,900 jobs, including 1,800 in construction by 2015.
- Increase economic output (GRP) of Northwest NSW by $470 million per year.
- “make available an average of nearly 5 GL of additional water to the region each year of the operations phase. This water would otherwise be untapped for irrigation and/or other agricultural purposes, and therefore represents an increase of water resources for the local community.”
Money, jobs and even water for the community. What more could we want? It’s just a little awkward that it hasn’t happened. ACIL Allen did a lot of complicated modelling, but forgot to ask what gas price the project might need to be financially viable. Whoops.
But of course no apology is necessary in this love affair. Fossil fuel companies kept on loving ACIL Allen all the same.
Just last year ACIL got together with Adani. There was that slightly embarrassing bit where ACIL contradicted Adani’s claim that their Carmichael mine would make 10,000 jobs, but it was just a tiff (and just 1,464 jobs).
They made up when ACIL modelled the mine based on the assumption that building a new coal mine, the world’s largest export coal mine, would not increase coal supply. Read that again if you have to.
As with Santos’ gas project, ACIL assumed Adani’s Carmichael mine was financially viable, even though Queensland Treasury has declared it ‘unbankable’ and no banks have agreed to finance it.
But the most committed love around is between Anglo American and minnow consultancy Gillespie Economics.
In 2012 Gillespie Economics went in to bat for Anglo’s Drayton South coal mine. The Drayton project is situated near famous horse studs, who have opposed the project bitterly. Gillespie’s assessment assumes “the project will not have any impact on the equine population on surrounding horse studs”. Because of this Gillespie also implicitly assumes that the project will not have any impact on how much people will pay to raise their horses next to this coal mine – a subtle but important difference for the horse studs.
On top of this, Gillespie used coal prices they were given by Anglo, of AUD$118 per tonne, to come up with a value for the project of $997 million. Coal prices are now 40% lower at $AUD72 and some analysts think Drayton is a stranded asset.
Anglo were humiliated when the project was rejected by the NSW Planning Assessment Commission in October 2014. The Commission found that “the extent and quantum of the [mine’s] benefits is questioned” and “without this certainty [of rejecting the mine], investment will decline and the equine industry will collapse.”
If you think Gillespie Economics owe Anglo an apology at this point, you’ve never been in love. Just months later, Anglo commissioned Gillespie again. Again Gillespie assume “there would be no adverse impacts on the [horse stud]properties.” Again Gillespie used a coal price (AUD$87/t) – way above the current price.
Alas for the star-crossed lovers, again the Commission has found that “there are a range of uncertainties in relation to the project benefits, that the risks to the Equine Critical Industry Cluster are real and that the risks are likely to outweigh the relatively short term benefits of the mine.”
In some ways it is beautiful. A perfect match between two dirty industries – one that produces a lot of carbon and one that produces a lot of crap.
But with commodity prices low and the politics of CSG and coal starting to change, it might be time to channel the Bee Gees and ask the fossil fuel companies and the economists, how deep is your love?
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