Passing gas: Economic myths around the Northern Territory’s North East Gas Interconnector pipeline

by Rod Campbell

The North East Gas Interconnector (NEGI) is a proposed gas pipeline between the Northern Territory and the eastern states. The project is strongly endorsed by gas companies, the Territory government and governments in other states, but analysis is lacking as to the actual benefits to Territorians and the rest of Australia.While there is a shortage of analysis, there is no shortage of hyperbole. This paper busts four myths around the NEGI.

1. The project is important for solving the east coast gas ‘crisis’

There is no east coast gas crisis. The eastern states are producing more gas than ever before and this is set to increase in the coming years. This is clearly shown in industry publications and is acknowledged by the Australian Energy Market Operator. Gas demand on the east coast is declining in response to high prices brought on by the recent commencement of exports to the world market.

2. The NEGI will reduce household gas prices

Australian domestic gas markets are now linked to world prices. Any production facilitated by the NEGI would have a minimal impact on world supply and therefore on Australian domestic gas prices.

3. The NEGI is important for NT government revenue

The NEGI is likely to make very little difference to the NT government’s revenue. At present, royalties from all mining, petroleum and gas extraction makes up only 2.9 per cent of the NT government’s revenue, $164 million out of a total $5,716 million in 2014-15. Put another way, 97 per cent of services in the NT are paid for by sources other than the mining and gas industries. The potential increase in gas extraction with the NEGI will not make a significant change to this.

4. The NEGI will bring jobs and infrastructure to remote areas

The gas industry is highly capital intensive and does not make many jobs once infrastructure is constructed. While several thousand people work on constructing the Ichthys project for example, at the time of the last 2011 census just 159 Territorians worked in the oil and gas industry. Nation-wide employment in oil and gas is 28,700, a fraction of one per cent of Australia’s 12 million employed people.There is no incentive for gas companies to build any roads that they do not need and beyond the construction period they will not need to use those very often. Government investment in infrastructure around the NEGI must be subject to rigorous assessment and cost benefit analysis. The government should be putting its scarce resources into infrastructure projects that benefit Territorians, not gas companies.

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