Special to The Globe and Mail  August 2, 2017   
      
      
   Petronas did Canada a favour. Just ask Australia   
      
      
   After years of waffling, Malaysia's state-owned Petronas finally pulled the   
   plug last week on its Pacific Northwest LNG project.  The company blamed the   
   dismal economics facing global LNG: a glut of world supplies and stagnant   
   demand have driven prices    
   well below the cost of constructing and operating the enormous facilities   
   required to process, liquefy, and ship the gas.   
      
   Of course, that didn't stop some from reprising familiar complaints about   
   Canada's supposedly anti-business policy climate.  High taxes (including   
   carbon taxes), interminable environmental reviews and Indigenous land claims   
   make it impossible to do    
   business here, they say.  Most ludicrous was the attempt to blame British   
   Columbia's new NDP government for the debacle.  It's amazing that precisely   
   one week of leftist rule could do more damage to this massive but shaky   
   business plan than years of    
   unfavourable economics.   
      
   In fact, far from blaming government red tape for the collapse of this   
   misguided project, we should be collectively grateful.  Those rules likely   
   saved us from wasting tens of billions of dollars on the biggest white   
   elephant in Canadian history.  In    
   effect, Canada's regulatory and fiscal processes function as an opportunity   
   for sober second thought – like an economic Senate. And in this case,   
   sobriety was desperately needed.   
      
   To better understand the bullet that Canada dodged, consider Australia, a   
   place where resource developers face far less onerous regulatory constraints.   
      
   When gas prices in Asian markets surged past $15 per MMbtu in 2009, and again   
   in 2012, gas producers everywhere salivated; but in Australia's case they   
   could act on that greed quickly. Several massive LNG projects were built,   
   virtually simultaneously,    
   all aiming to cash in on premium Asian prices.   Environmental and fiscal   
   hurdles were modest; and Indigenous populations in Australia have little   
   leverage to negotiate.  A new right-wing government sweetened the pot by   
   cancelling a modest carbon tax in    
   2014.   
      
   The outcome was a madcap construction boom that puts the Klondike gold rush to   
   shame. Close to $200-billion (Australian) was spent on LNG projects over the   
   next several years. In Queensland, three massive plants were built at the same   
   time, on the same    
   island.     
      
   The impact of this mayhem on construction costs was both enormous, and   
   predictable.  The mother of all cost overruns was racked up at Chevron's   
   Gorgon plant offshore Western Australia.  Its final price-tag (a whopping   
   $72-billion) was almost 50 per cent    
   over budget. (Just imagine the recriminations if any public sector agency ever   
   blew through its budget by a similar margin.)   
      
   The short-lived boom affected the whole course of Australia's economy,   
   generating inflation, putting upward pressure on interest rates, and   
   contributing to a skyrocketing currency – that in turn sparked massive   
   deindustrialization (including the    
   complete shutdown of Australia's auto industry).  The plants are now on stream   
   (though most have suffered repeated operational breakdowns), long before a   
   single shovel hits dirt in Canada's LNG play.  A triumph of free-market   
   efficiency, right?   
      
   Well, not exactly.  Because after construction started, Asian gas prices fell   
   by two-thirds (not surprising given all that coming new capacity), way below   
   break-even levels.  All the plants are bleeding red ink; writedowns already   
   exceed $10-billion for    
   the Queensland plants.  With construction work done, just a few hundred   
   workers remain to operate the plants.  One-time boom towns have been left with   
   a massive hangover, including collapsed housing prices.   
      
   But it's not just gas producers paying for this enormous miscalculation.    
   Every Australian energy consumer is also paying.  Unlike Canada, gas exporters   
   don't have to prove that exports are surplus to domestic needs.  Hence   
   domestic prices more than    
   doubled with the diversion of so much supply to exports; electricity prices   
   also skyrocketed (because of gas-fired generation costs).   
      
   Government isn't reaping any benefit, since the sweet royalty deals inked to   
   accelerate LNG projects require virtually no royalty payments until capital   
   investments have been paid off.  That will likely never happen – meaning   
   Australians effectively    
   gave away this gas (without royalties) to Asian consumers, many of whom now   
   pay less for it than Aussies do.   
      
   In fact, it's hard to find anyone who benefited from this fiasco.   And   
   Australia's pro-development mindset greased the wheels.  Taking more time to   
   review the costs and benefits of major projects; empowering Indigenous   
   communities to negotiate fair    
   deals; and establishing a fiscal regime that's fair to both taxpayers and the   
   climate, would have put enough sand in the wheels to at least slow down the   
   bandwagon, and possibly stop it altogether.  Canadians should thank our lucky   
   stars we did it better.   
      
      
   Jim Stanford is Harold Innis Industry Professor of Economics at McMaster   
   University, and currently lives in Sydney, Australia.   
      
   --- SoupGate-Win32 v1.05   
    * Origin: you cannot sedate... all the things you hate (1:229/2)