CSG economic modelling

On the alleged benefits of the Santos coal seam gas project in North West NSW
by David Richardson

Santos is planning to mine the coal seam gas reserves of North West New South Wales and, as elsewhere with coal seam gas projects, has encountered substantial local opposition. Action groups such as ‘Save Liverpool Plains’ and ‘Lock The Gate Alliance’ have initiated lobbying and protest action. However, Santos has recently released a report entitled ‘The economic impacts of developing coal seam gas operations in North West NSW’ undertaken by the Allen Consulting Group (the Allen Report). The Allen Report was commissioned and released by Santos and in an accompanying press release Santos says that the report examines what is likely to happen, “if the company’s proposed coal seam gas (CSG) investments proceed as scheduled.”

Santos’ Vice President Eastern Australia, James Baulderstone, took the Allen Report to say that: “Allowing the natural gas industry to develop in NSW will deliver once-in-a-generation economic opportunities for the state, especially in regional areas.” However, despite the claim that the development of CSG will create a ‘once in a generation’ economic opportunity Santos’ own economic modelling shows that, on the contrary, the benefits to the local economy of the planned development will be quite small and that the major beneficiaries will be the owners of Santos who predominantly reside outside of the development area.

The Santos modelling contains a number of findings that should be of interest to both opponents and proponents of the mine alike, including:

· only 30 new gas jobs are expected to be created in the operational phase of the development

· 570 new public sector jobs will be created

· despite the very small number of new mining jobs the modellers find that economic output in NSW will grow by $821 million.

Due to the fact that the Allen Report does not provide a clear outline of the critical assumptions that they made readers are at a disadvantage in trying to understand how such a small increase in direct employment could create nearly $1 billion in additional economic activity. Similarly, the reader is left to wonder how an investment in coal seam gas creates 570 new public sector jobs as the report’s authors provide no discussion of this intriguing conclusion. While the reported findings in the Allen Report raise as many questions as they answer, those interested in the relative costs and benefits of the development should be even more concerned with the results that the report does not present.

For example:

1) the modelling results appear to suggest that gas exports from the development will ‘crowd out’ $646 million in other exports by driving the value of the Australian dollar higher.

2) the loss of $646 million in exports from other sectors is likely to cause then loss of 5,770 jobs in the non-mining industries.

3) the report provides no broad context for the scale of the development, for example, it does not discuss the estimated 30 new gas jobs in relation to the 66,000 people in the labour force of the North Central Plains and Hunter Region.

4) whereas proponents of other large developments, such as the China First coal mine in Queensland, concede that their mine will lead to the loss of thousands of jobs in manufacturing the Allen Report provides no clear discussion of the net macroeconomic consequences of the development.

5) despite claiming to consider the ‘economic impacts’ of CSG development the Allen Report includes just three paragraphs on the impact of the proposed development on the region’s water resources. Water is a vital economic resource for the region but no analysis of the environmental risks is attempted.

6) the Santos report does not provide evidence to support the assertion that treated water will be safe for crop and livestock use or for release into local water ways.

It is hard to escape the conclusion that the Allen Report, being based on a series of systematically generous assumptions and largely ignoring the biggest costs and risks of the project, provides a flawed basis on which to evaluate the net costs and benefits of the Santos development. Indeed, given the inclusion of results such as the boost in public sector jobs of 570 and the exclusion of any analysis of the impact on the exchange rate and jobs in other sectors it would seem that the Allen Report conceals more than it reveals about the likely impact of CSG development in NSW.

Full report