James Price Point: An economic analysis of the Browse LNG project

by Matt Grudnoff

The Western Australian government together with Woodside proposes to build the Browse LNG precinct on James Price Point in the Kimberley region of Western Australia (WA). The evidence to support the state government’s claim that the precinct will deliver economic benefits is virtually non-existent. Indeed, a close reading of the scant evidence that is available shows that the development will:

• Have a significant adverse impact on the WA state budget;

• Rely on up to 97 per cent fly-in fly-out (FIFO) workers and employ very few local workers;

• Lead to a reduction in employment in tourism (the region’s largest employer); and,

• Significantly drive up the cost of living for the vast majority of local residents who will not be employed, directly or indirectly, by the new development.

Furthermore, the analysis presented in this paper suggests that:

• The project will result in around 3,000 workers losing their jobs across the rest of WA; and,

• The exchange rate will rise further, placing even greater pressures on manufacturing, tourism and agriculture.

Despite the size and stated significance of the Browse development the WA state government has not commissioned any comprehensive economic modelling of the project. While this decision makes an assessment of the economic benefits and costs more difficult, it also makes it impossible for the state government, or the development’s supporters, to claim with any certainty that the project will deliver economic or social benefits to the Kimberley or WA communities.

According to the WA government’s own economic assessment of the LNG precinct there will be few long term economic benefits for any of the local residents. Most workers will be fly-in fly-out and will be housed in an accommodation camp 60 km north of Broome. Indeed, the Strategic Social Impact Assessment prepared by the Department of State Development is based on the assumption that between 90 and 97 per cent of the workforce will be FIFO between the project’s commencement and 2020. The same assessment also states that during the construction phase the large workforce will use community services such as health and police, yet acknowledges that these services are currently under resourced and the additional demand placed on them by construction workers will see them further degraded.

While the majority of construction workers will be based in the accommodation camp some will choose to live in Broome creating an increase in demand for housing causing prices to rise. The WA government expects inflation in the region to be higher during the construction of the project. The tourism industry is one of the largest and most important industries in the Kimberley, yet the government’s assessment points out that the LNG precinct may reduce the Kimberley’s reputation as a world class tourist destination. The construction phase will also put pressure on accommodation as construction workers crowd out accommodation for tourists.

Intriguingly, the WA government is also likely to spend more money supporting the project than it will collect in state taxes. With most of the tax revenue from the project flowing to the federal government, the WA government’s main source of additional revenue will come from payroll tax. While these tax receipts will increase during the relatively short construction phase, they will be quite minor during the operational phase. The WA government has committed to spending $250 million over 30 years on various grants and it will also need to spend substantial funds on upgrading Broome’s community facilities.

The result of these promised and expected increases in outlays is that the project is likely to be a net loss to the taxpayers of WA.

If the WA government believes it has made the economic case for this project it should explain where this evidence can be found as its own Strategic Social Impact Statement primarily presents evidence which rejects that conclusion. The WA government’s Strategic Social Impact Assessment states: Many of those who oppose the development of the Precinct are concerned about the impacts of the Precinct on the marine and terrestrial environment and the changes it may bring to the identity of Broome.

On the other hand, those who support the project generally do so because of beliefs about the economic benefits such a development may bring to Broome and the Kimberley. It is, perhaps, ironic that the Browse LNG development has such enthusiastic support from the WA and Commonwealth governments given the complete lack of evidence to support the assertion that the project will deliver net economic benefits to the Kimberley region or the WA economy. While there is little doubt that this development has the potential to deliver substantial profits to the small number of people with a large share of the project’s ownership, there is also little doubt that most of those owners live outside of the Kimberley and most likely outside of Western Australia.

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