Economies of shale

Submission on the Draft Report of the Scientific Inquiry into Hydraulic Fracturing in the Northern Territory
by Rod Campbell

The Australia Institute made a submission on the Draft Report of the Scientific Inquiry into Hydraulic Fracturing in the Northern Territory (the Inquiry). The submission focuses on Chapter 13 Economic Impacts of the Draft Report and the report by ACIL Allen The economic impacts of a potential shale gas development in the Northern Territory (the ACIL report), commissioned by the Inquiry. A separate Australia Institute submission addresses the Draft Report’s treatment of methane emissions.

The Australia Institute has been involved in earlier parts of the Inquiry, making a written submission, appearing at a Darwin public hearing and in consultation with ACIL. Overall, our view is that unconventional gas in the Territory is unlikely to provide significant economic benefit and comes with substantial risks. Our view is supported by the ACIL report which states that there is “very high probability” that an unconventional gas industry would “fail to commercialise” in the NT (“Shale Calm” scenario). It also states there is “very low” or “low” probability of their highest production scenario (“Shale Gale” scenario).

Even in the low-probability Gale Scenario, ACIL estimate direct and indirect employment in the NT would be only 524 full time equivalent jobs higher than their baseline case. This represents just half of one percent of employment in the NT. Similarly, ACIL estimates that the Gale Scenario would see an increase in Territory Government revenue of $143.2 million per year, just 2% of budget revenue. The high or very high probability scenarios would increase Territory revenues by between zero and $29.1 million per year, a fraction of one percent.

Despite this rare unanimity from economists that an unconventional gas industry in the NT would be low-probability and have little impact on employment or revenue, the Draft Report paints a very different picture. For example:

ACIL Allen’s economic impact assessment modelling reports that lifting the moratorium on hydraulic fracturing in the NT will deliver tangible economic benefits in the form of increased income, output, employment and taxation revenue, and stronger population growth. (p327)

The Draft Report reaches this different conclusion because it omits and misrepresents key results of the ACIL report. In particular, the Draft Report makes no mention of ACIL’s assessment of the probability of its different modelled scenarios. ACIL’s report makes it clear that and should be a key point raised in the Inquiry’s final report.

Other problems relate to the conflation of jobs with ‘job years’. Much of the Draft Report’s focus is on numbers of ‘job years’ that ACIL’s modelled scenarios estimate, in particular the highest number of 13,611. The Draft Report fails to explain the difference between jobs and job years, omitting the latter term entirely.

The authors of the Draft Report are not alone in misunderstanding ACIL’s results. Multiple media reports misreported the 13,611 ‘jobs’ figure, giving the impression that an unconventional gas industry could be an employer 26 times greater than ACIL’s best-case assessment. Astonishingly, the Inquiry’s leader Justice Rachel Pepper claimed 32,000 jobs could be created in one media interview, misquoting another ACIL figure.

ACIL’s presentation of some of their key results made these mistakes easy to make. For example, ACIL’s executive summary also refers to 13,611 jobs, saving the ‘job years’ term for later in the report. Some of ACIL’s population figures are ‘person years’ not people. Estimates of revenues and growth in present value form, which provide more conservative values, are scarcely referred to in their report.

While these issues may be a result of clumsy editing, readers of ACIL’s report should note that the company consults regularly to the gas industry. While ACIL’s economists have produced reasonable results, their editors have managed to produce a report that has been interpreted publicly in a way much more favourable to their usual list of clients.

In the politically charged atmosphere of gas policy the Inquiry’s omissions and misinterpretations of ACIL’s results make evidence-based policy even more difficult to achieve. Much more care needs to be taken around economic results in finalising and communicating the Inquiry’s report.

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