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

continued

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.

to be continued

continued

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.

Philip S - That NDIS is a un-thought out scheme and future black hole

Blind Freddie has no difficulty seeing that, so why are bloodsucking parasites of whatever colour falling across each other in the rush to implement something that hasn't had a hint of due diligence done ?? My guess is that the strings are being pulled elsewhere, most probably by the same United Nations muppets who saddled us with Agenda 21, the Lima Agreement, the Brigalow Scheme, political correctness, boat people, gay rights, the Human Rights Act (that conveniently excludes white Australians) and other utterly moronic ideas.

When you have a government that values the passing of legislation, as more important than implementation, combined with mindless spending with little or no result, this is the consequence of such incompetence.

Unfortunatey, there were too few of us who realized where we were headed, back in 2010 and now, even though a fair number of those poor lost soles that didn't see the light then, can now, i am fearful it is going to be too late.

All I can say to those who still think labor have dome a great job, just remember where we were in 06, and where we are today, and this disgraceful situation has happened during a huge mining boom.

All they seem to care about are percentages, of debt to GDP, but $300 billion is still $300 billion and I doubt we can ever pay it back.

As for CSG, I have an involvement in the industry, as I have a few wells on my land.

This is one industry where the goal posts are constantly being shifted and may well see this too as an unviable industry.

Some people just need to understand, that for every action, there is a reaction, but they just don't get it!

I didn't expect you would get much reaction from the labor lovers praxidice, as even they must be questioning our position.

I think the withdrawal of the likes of Ford will have a huge negative effect on confidence, as this type of Industry is the back bone of manufacturing and closures like this could well spread like a cancer throughout the sector.

Not only that, but it will instal unrest in any sector that competes with imports, such as this sector does and the nock on effects will hurt badly.

The sad part is that some of us saw this coming, but the reality is that we are now all going to have to pay for the mess created, and not only will we all pay, but we will most likely have to do so without the huge injection from mining that we have all become accustomed to.

Meanwhile, those who have caused this mess, will be sitting there on their tax payer funded pensions, living it up, while we soldier on awaiting the next introduction of an imcompitent labor government, all in the name of change.

rehctub - I didn't expect you would get much reaction from the labor lovers

There is no doubt the ALP (together with their Greens appendage) has been exceptionally fortunate in times past in that the global economy has, for the most part, been reasonably forgiving of ineptitude. These days its a whole new ball game, one in which no political party is exactly going to have a field day & least of all the ALP while they stick with certifiable lunatics like the red-headed witch and the dying duck. Judging from the demented ramblings of RAbbott & friends, its quite clear the LNP doesn't have significantly more nous either.

The local motor industry has been a dead man walking for years. Without massive exports it could never survive. Whilst the ALP union faction would understandably demand ridiculous & unsustainable support, one would think the LNP rabble could at least do the sums necessary to write the industry off as a lost cause. Maybe if we had treasurers with at least a fleeting knowledge of accountancy rather than moronic failed lecturers or failed lawyers ......

I notice that Big Clive has at least some clues about sustainable businesses, particularly onshore processing of minerals that currently get shipped to Japan and elsewhere, then back here. Why pray tell haven't the major party 'fact finding' junkets discovered this business ?? As for those who decry mining interests belong Big Clive, I suggest that the ostensibly 'environmentally responsible' ALP / Greens alliance hasn't exactly done a lot to stop CSG environmental vandalism.

Rehctub, have they had to do any fracking on your land ?
I understand it is not always used in coal seams whereas in shale oil
and gas it is always used.

The rising cost of energy is ultimately the cause of our economic problems.
The Energy Return on Energy Invested (ERoEI) will inevitably fall.
The effects have been buffered to some extent by shale oil & gas but
the peak of their production in the US is very soon.
Already the large Bakken field is showing signs of peaking and by next
year it should be certain.

Have a read of this article by Gail Tvberg.

http://theenergycollective.com/gail-tverberg/229121/oil-limits-and-climate-change

Weather, oil, coal, energy, the economy, it is all becoming ground
up together.
Our problem is to get the politicians to realise how all interconnected it all is.
Global warming is becoming much less important and as Gail Tvberg
notes the IPCC also is not aware of what is happening with energy.

praxidice,
I have been waiting to see if someone posted an article about further expenditure outside the budget.

Bill Gates visited and The PM promised another $80 million, not budgeted for, in foreign aid, no problem?

Then both major parties agreed to pass legislation for a massive increase on electoral funding, from $2.40 per primary vote to $3.40 per primary vote. That is an utter disgrace!

I thought these issues would be right up your alley.

Banjo

I was aware of the issues you raised but thanks for the heads-up anyway. Whilst the major snout parties are happily schmoozing, I suspect Big Clive & Mad Dog Madigan at least are compiling a list to to be publicized at a suitable time. Moral of the story is that both the ALP & LNP are equally culpable, one is as bad as the other. I've heard from a quite reliable source that the red-headed witch & the RAbbott have been seen together multiple times over the past few weeks, one can only assume whatever they were discussing was to their benefit rather than the peoples. The half-billion dollar slush-fund has yet to draw as much as a squeak from RAbbott & Co .... ahhhh, the wonders of bipartianship !!

I really think that "Atlas Shrugged" by Ayn Rand should be 'proscribed reading' for all senior school students if only for them to see "what can happen will happen". Socialist welfare policy destroys productivity in turn destroys the economic fundamentality in the long run. Economic rationality restore the balance through nothing but honest hard work by all that are capable.
You cannot waste all the water in the dam and expect the stock to survive when it doesn't rain.

chrisgaff1000 - "Atlas Shrugged" by Ayn Rand should be 'proscribed reading' for all senior school students

Presumably you meant 'PREscribed ??

I believe its probably too late for 'Economic rationality' to stave off the inevitable financial crash. There are just too few parasitic snouts controlling too large a percentage of the money, and too many sheeple on the breadline. The 'real' unemployment rate is undoubtedly closer to 15% (and climbing) than the claimed 5% or whatever. The typical job advert gets 500 - 600 enquiries in the first few hours and that will escalate when the dying duck terminates a few hundred thousand federal public servants, and again if / when the RAbbott does his thing. Neither the ALP nor the LNP have the will to make meaningful changes,in fact they both propose squandering yet more money on the already moribund motor industry. Possibly a Palmer win would delay the day of reckoning a bit by encouraging sustainable local industry, but even then I can't see any possibility of preventing the come-uppance. The good side of a crash is that it will spell the end for bloodsucking parasites, legal leeches, avaricious CEOs, banksters, boat-people and other assorted snouts

Praxidice,
Thank you for your correction. I am only a humble copper so english (spelling) has no real meaning in my briefs because there is always the DPP to correct as it prosecutes.

PS, My thoughts and belief that Australia has yet to see the full impact of the GFC still remain strong

Chris said;
the full impact of the GFC still remain strong

I think you are right it will continue for a long while.
I suspect that it will be a gradual slow down indefinably and is
really an era of zero growth which is likely to be permanent.
Indeed there will be an era of contraction to be undertaken.

Some say there will be an economic collapse, but hopefully with
organisations like the Transition Town Movement it can be a smooth
transition and the transition to a happier lifestyle.
It will require many changes in outlook and adaption to our working lives.

So, not being too pessimistic I think we can come out the other end
of all this energy transition in quite good shape.

chrisgaff1000

Not another of the blue-uniformed fraternity ... this place is turning into a police state !!

I don't know how any sentient being could argue against a looming financial crash of grand proportions, the GFC was merely a warning of a much more basic problem that the financial world is not prepared to acknowledge. Whilst I think Bazz is sort of reading from the same hymn book, I don't perceive a humungous reckoning as necessarily something negative, in fact it could well be the most beneficial event to occur in centuries. Lack of money will effectively spell the end for banksters, politicians, lawyers, insurance companies, public companies, boat people & the myriad of other snouts currently preying off workers & retirees. My main concern is exactly what happens to snouts when money ceases to exist. Given that none of them has a clue in the world about earning an honest income, can we expect a resurgence of highway robbery ?? If so, can we reasonably expect the armed services and / or the constabulary to continue to provide a public service if they aren't getting paid (at least not in money) ?? My thoughts are that they will probably also turn to highway robbery, except possibly some of those with trade or whatever skills that are tradeable for food & so on.

Hi Bazz, no, Fraking has not been used on my land, and yes, it is my understanding that it is mainly used on shale oil gas, although I do believe it is used in CSG at times.

Banjo, it's very easy to give away money, when YOU PERONALLY don't have to budget from day to day like an increasing number of Australians do today, because if your OWN WORLD is cosy, like that of Julia's,and Bill's, then personal financial stress is one thing you are unfamiliar with.

This is why the likes of Bill Gates does not hesitate to ask, and Julia doesn't hesitate to offer, as neither of them have the often overwhelming task of making ends meet, which is becoming a national problem for many today.

In other words, they are quite simply OUT OF TOUCH.

It also may explain why JG can't see a problem with our debt, saying it's SO LOW, and we are far better off than most, but which ever way you look at it, $300 billion is still $300 billion and is unlikely to be repaid in my working life. The result being that some of my retirement income will be forfeited to repay debt, debt that I PROUDLY had nothing to do with as unlike many, I SAW THE LIGHT.

I also see that Tony Abbott has withdrawn his support for the pollies PORK BARRELING election fund.

The amusing part is that Julia has the nerve to acuse him of being UN trustworthy boy, is that the pot calling the kettle black!

As for our looming energy cricis, why on earth domt we provide our people with affordable energy (CSG) and export what's left.

There is no better way to stimulate an economy, than to give people additional spending money.

rehctub - As for our looming energy cricis, why on earth domt we provide our people with affordable energy (CSG) and export what's left.

I take it you don't perceive any significant issues with CSG ?? There are plenty of horror stories, in your opinion are they baseless ?? Its not a personal worry because its inconceivable we'll see any activity in my area however in my travels I've noticed a lot of angst from people in Darling Downs and northern NSW areas. One has to wonder if the fact of so much opposition doesn't equate to at least some justification.

praxidice, I'm not opposed to the CSG industry, although I am opposed to mining prime ag land, against the will of the farmers.

The reality is that unless you have inherited your farm, you are pushing it up hill to make a quid, so my guess is those who are opposed are the lucky ones.

As for the industry, what do you propose is the alternative, as we need energy and renewables are stil by in large, a pipe dream.

Just in the serat basin alone, there is at least $100 billion to be spent in the next ten years.
This will financially drought proof this area.

rehctub - As for the industry, what do you propose is the alternative, as we need energy and renewables are stil by in large, a pipe dream

I'd prefer to maximize the use of solar where possible as its cleaner than any fossil fuel. Transport fuel is a worry, whilst battery electric vehicles would be ideal in cities, range is still a concern out of town. The Project Better Place exchange battery concept looked OK until it went broke. I guess the petrol-head mentality won't really die until fuel price goes into orbit although I'd gladly switch to a battery-electric car if only one was available at a halfway sensible price. I've been looking at the Mitsubishi MiEV (80k range is inadequate) & Nissan Leaf (150k range not quite enough). I've also driven the Renault Fluence ZE (very very impressive but they are in limbo til Renault figure how to deal with batteries that were to be leased by the Better Place mob).'Fuel cost' (zero) is a major attraction for me as I have more than adequate solar power in several locations. Not subsidizing middle-east terrorism is another big plus.

I think that while the shale gas and shale oil keeps going in the US
it will cause a reduction of US demand on world oil supplies.
This will help to stop price rises for a while but fairly soon the
shale will not be able to keep up with the decline in the older oil wells.
So far the calculations are predicting decline in shale production to
start in the next year or two. Shale has given us an extra few years
to do something about it all, but despite being told by our own govt
depts the politicians have just relaxed and thought it is after the
next election.

I had a drive of the Nissan Leaf and it is really good and would suit
exactly, but the price at $50000 is just stupid.
BTW Prax, I heard that the last iMev were disposed of for $20,000.
Imports only on request now at the old price.

Cast your minds back to 08 and the GFC.

Now, look at where we were then, $20 billion in the bank, where we are today, $300 billion in the red AND COUNTING, then take away the mining boom that this government has enjoyed.

Assuming we can stop the boats, HUGE ASK with no money, how on earth are we ever going to repay that HUGE DEBT and maintain a lifestyle that resembles something of what we have been accustomed to.

Scary stuff hey!

REhctub, I don't think we will be able to maintain the current lifestyle.
We will however if government acknowledges the problem and uses our
quite considerable existing energy resources for our benefit instead
of China & Japan's benefit then we will be able to extend our present
economy while building the new energy regime using our fossil fuels.

If we exhaust our fossil fuels before we build the new energy system
we will suffer collapse. It doesn't take a genius to see the signals
in the world economy.
Once the US's shale starts its decline their recent growth surge will disappear with it.

I'm certain stopping the boats is quite do-able albeit not by way of the amateurish efforts of ALP / LNP. First thing needed is official recognition of the difference between genuine migrants & opportunists. Second is admission of the involvement of snouts with ulterior motives, particularly lawyers & charities. Third is the establishment of measures capable of identifying, locating, and repelling invaders. This is clearly an involved process with international maritime law being only one of several 'gotchas'. Finally, Australia needs to regain total control of policy and not simply kow-tow to to United Nations and other possibly well-meaning but nevertheless deluded do-gooders. Repaying international debt, whatever it is but probably somewhat higher than $300 billion) probably won't be the issue it would otherwise be if / when the world economy inevitably crashes.

I saw someone from the labour party on lateline stating how we just
cannot send the boats back to Indonesia.
Neither side was awake, they are Indonesian vessels and Indonesia
cannot refuse entry to Indonesian vessels.

Simple as that !

What they do with the passengers, well that is up ro the vessel's owner.

Bazz

As I understand the situation, maritime law compels the captain of any vessel that comes to the aid of one of those semi-floating death traps to do whatever to safeguard life, presumably convention is to tow the thing to the nearest port (typically somewhere in Australia under current arrangements). I suspect no captain of an Australian Navy ship would dare do otherwise, even if gubmunt legislation said something about towing the boat back into Indonesian waters. If this is essentially correct, stopping boats already underway would entail stationing half our navy just outside Indonesian waters so that the nearest ports would be Indonesian.

I fail to see any reason why we can't simply deport any already here who don't fit the 'refugee' criteria. Surely the rest would wake up after a few jumbo loads ended back from where they came. The Big Clive proposal to insist on a visa issued by DFAT in Jakarta, otherwise rack off hairy legs, is infinitely more workable than the inane ALP / LNP suggestions, furthermore its been tried and proven effective elsewhere.

We are not talking about sending back vessels that are on the point of sinking.
If they do scuttle the boat then the crew should be charged with
sinking a vessel and endangering passengers. Probably get 20 years for
that offense.
I am aware of the difficulties but it has to be done.
Flying them back to Iran/Iraq/Syria etc is difficult as they have no
passports to prove their nationality, which is why they destroy them.

The real heman thing to do would be to load them on a Hercules fly to
a remote airport in their country and push them out the back and take
off without even stopping engines.

Bazz - The real heman thing to do would be to load them on a Hercules fly to a remote airport in their country and push them out the back and take off without even stopping engines.

:) :) :) However I could just imagine the screams from the lunatic do-gooder element

I am convinced that at least some of the answer is to effect Indonesia in a financial way if they don't stop the boats leaving their shores.

Furthermore, if we do intercept these boats, offload the passengers on to special purpose ferries, lock up the crews, burn the boats and return the passengers to Indonesia where they came from.

If they (ind) don't like that, then they have to stop the boats leaving.

I say again, stop the aid and they will sit up and take notice.

rehctub - I am convinced that at least some of the answer is to effect Indonesia in a financial way if they don't stop the boats leaving their shores.

One has to wonder why neither the red-headed witch or the RAbbott haven't seized on that. We've given the indonesians billions in financial aid & given its easily the most corrupt regime on the planet, we are undoubtedly paying for weapons & handouts to the fatcats rather than improving the lot of the peasants. I wonder what would be the implications of no passports as noted by Bazz, logically one would think the indonesians have to accept people who came from there, but in view of the rampant corruption endemic to all levels of indonesian culture, I can envisage the necessity for a big stick approach. Note also that Australia is already in the firing line of islamics we've offended by sticking our nose into their affairs in both Iraq & Afghanistan, we'd need some pretty smart military folk (not moronic politicians) to get their heads around the pros & cons of stirring up another hornets nest.

I think the time of Neville Chamberlain is over as far as worrying
about Islamists. It is simple, the boats are Indonesian.
There is no other point to be argued.