http://www.couriermail.com.au/news/national/warning-derelict-economy-ahead/story-fnii5sdj-1226651710467

THE Australian economy is heading for a potentially catastrophic collapse from a devastating squeeze between a sudden and dramatic drop in demand for our major resource exports and a crippling increase in the cost of new projects.

Ground zero is now the exploding LNG (liquified natural gas) sector.

Australia's immediate and indeed longer-term future is literally balanced on the knife-edge viability of the coal-seam projects in Queensland and a raft of conventional projects off the West Australian and Northern Territory coasts.

That's, 'exploding' in terms of the investment pouring into the sector, and the expected - more accurately, 'hoped for' - growth in future income from LNG.

This was expected to pick up from where our two major exports - iron ore and coal - left off, as they, again hopefully, levelled off in terms of the dollars they earned us.

Coal has already well and truly 'levelled off'. Actual export volumes have fallen, and with collapsing prices, overall income will be down dramatically. And, especially for energy coal, will stay down.

It will be a long day downunder before we see another energy coal mine built. More ominously, the reason -- the squeeze between falling prices and soaring project costs - prefigures what's happening with LNG.

The bell has been ringing for some time. The Bureau of Resources and Energy Economics ominously identified an 11 per cent surge in project costs after green lights had been given to them.

Most of this is happening in LNG projects, where new research from McKinsey & Co identified extraordinary levels of wages being paid. Like $200,000 for junior tradesmen, as much as $500,000 for highly specialised skills.

Oil giant Chevron had to add $9 billion to the cost of its huge Gorgon project off WA and Woodside and its partners recently abandoned an offshore development for its Browse project.

to be continued

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In my judgment they are almost certain not to proceed with the supposedly cheaper offshore

floating option either. The killer is the prices-cost squeeze.

Yesterday, the CEO of global oil giant Shell, Peter Voser, added his voice to the concerns

in a major speech in Brisbane.

While he identified a continuing and sustained surge in global demand for energy over the

next 20-plus years, and especially for gas, he also bluntly, if politely, laid it on the

line.

Rising costs in Australia had become a significant "challenge" - my translation: project-

killer - for companies doing business here.

His further critical, understated point, is that we faced rising competition from gas

producers in North America, Asia and Africa. Simply, bluntly, no one had to buy from us.

This is what makes it very, and dangerously, different from the explosion of sales and

prices in our major export-earning industry - iron ore.

They - meaning China - did have to buy iron ore from us. And Brazil. There was almost

literally no alternative.

This prompted the extraordinary outcome of exports out of the Pilbara leaping from less

than 200 million tonnes a year to over 500 million tonnes. At the same time prices were

tripling.

The really ominous part is that the threats to the future of LNG are developing - rushing

towards us - just as the tide could be turning even for iron ore as the reality of demand

and supply finally catches up with that industry. Just as it has already done with both

forms of coal, but especially energy coal, thanks to the explosion in shale gas production

in the US.

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That has led to an immediate and huge replacement of coal by shale gas in the US energy and

power mix - sending US coal pouring into export markets looking for sales.

It won't happen quite so quickly with LNG; and perhaps even when it does, with a less

dramatic impact on price. But it will happen.

Yet, we are partying Great Gatsby style, as if there's no tomorrow - as if we can absorb

huge and continuing increases in both LNG project costs and in their subsequent operation.

We are heading not just for a cliff, as new investment in the resources sector slows

sharply. But something more akin to shooting off the North Face of Mt Everest.

Just how catastrophic it could be - it is likely to be - has been spelt out in two major

speeches by Professor Ross Garnaut.

Now Garnaut is the man who so presciently and accurately spelt out Australia's resources

future a full quarter of a century ago in his landmark epic Australia and the Northeast

Asian Ascendancy.

Then he wandered off the reservation after drinking the Nicholas Stern climate change

Kool-Aid.

Now he's back 'on the reservation', he bears listening to. Bears very close listening to.

As he paints a picture of an Australia in deep recession, where we face a sharp

deterioration in all dimensions of our living standards.

He does - in my judgment too, hopefully - suggest there's a way out as the resources boom

implodes from a collapse in Chinese demand and our cost increases.

Simply, that we go gangbusters, developing the neglected NON-resources side of the economy.

Services, rural products, manufactures.

But even 'success' would be extremely painful. It would mean big falls in real wages, the

dollar, and higher unemployment.

And presumably, no tax cuts, effectively ever again. Just the relentless grind each year of

bracket creep.

Oh so true. Yet anyone who speaks against the NBN, Gonski, Disability insurance scheme, higher unemployment benefits & all the other wild spending initiatives announced by her ladyship, is a mean spirited beast.

I reckon we will see a drop in welfare, & will have to cut back in mega expensive medical treatment in the not too far distant future, rather than expand entitlements

Hasbeen - Oh so true. Yet anyone who speaks against the NBN, Gonski, Disability insurance scheme, higher unemployment benefits & all the other wild spending initiatives announced by her ladyship, is a mean spirited beast.

Look on the bright side. The sooner we get the long-awaited financial crash, the sooner we'll see the end of banksters, lawyers, politicians, bureaucrazies, CEOs, judiciary, do-gooders, boat people, revenue-raising thuggery and a myriad other bottom-feeding parasitic lifeforms. Personally it can't happen quickly enough for me, I'm certainly better prepared than any of the aforementioned blood-suckers.

That NDIS is a un-thought out scheme and future black hole also the exempting of access to people over 65 (sounds like age discrimination to me which is illegal)
What will we have to tax to pay for it?

Derelict economy is right.