Oil in the Great Australian Bight

by Rod Campbell and Dan Gilchrist

Multinational oil company BP is planning exploratory drilling for oil and gas in the Great Australian Bight. The Senate Standing Committee on Environment and Communications is conducting an inquiry into the proposal, including into social and economic impacts of potential oil and gas exploration and production.

The economic benefits of oil and gas exploration are minimal. Such activities are highly capital intensive, so require relatively few workers. While eventual production would employ more people, in the context of the South Australian labour force, the impact would be minor.

Australia wide, the oil and gas industry employs 19,000 people out of a workforce of 11.9 million people. This represents less than 2 out of every thousand jobs in Australia, 0.16 percent. South Australia is similar, with 1,831 people working in oil and gas out of 739,000 people employed in total at the 2011 census.

The North West Shelf project saw employment peak at 1,660 employees and later declined somewhat to less than 1,500. A Bight oil project is likely to be smaller, with job numbers perhaps between 1,000 and 1,500 people. It is important to remember that the majority of any future employees would be fly-in-fly-out (FIFO) workers who would be flown from around Australia, not people from local regions.

Exploration drilling in the Great Australian Bight would be unlikely to pay any royalty income or tax to the state or federal governments. On the contrary, expenses on exploration would be likely used as deductions from future income from the Bight project or from other BP interests in Australia.

The entire extractive sector paid $242 million in royalties for the minerals, oil and gas extracted in South Australia in 2014-15. This represents just 1.5 percent of South Australia’s total revenue of $16.5 billion in that year. South Australia’s government received substantially more from car registration, $388 million, than it did from the mining, oil and gas sector.

Oil production in the Bight could generate more royalty revenue – the North West Shelf project is budgeted to contribute $762 million in 2015-16 to the WA government, almost 3 percent of the state’s revenue of $26.3 billion. Before such revenues were collected, however, the Western Australian state had to incur substantial expenses, as is made clear by the WA Treasury:

In 2010 net present value terms, the cost of Western Australia’s assistance to the North West Shelf project (e.g. payment of subsidies to the State’s power utility to help cover the losses it initially incurred under crucial ‘take or pay’ gas contracts) is estimated to be around $8 billion.

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