North Australia Weekly Digest – 23/04/2013

Here is a digest of the major stories impacting Northern Australia over the last week:
The Australian
Opposition resources spokesman Ian Macfarlane has criticised high labour costs and the soaring Australian dollar, saying they contributed to Woodside Petroleum’s decision to shelve its Browse LNG project. “When a cook on an oil rig in Western Australia gets upwards of $290,000 a year, I think the inevitable was going to happen with James Price Point,” he said. “In time, the true cost of doing the project at James Price Point will come out, and it is astronomical, and far higher than the $45 billion as suggested. In the end that is the result of the high currency and high labour costs”.
The mining sector has criticised the government for threatening the supply of gas on Australia’s east coast and adding layers of green tape to projects in its proposal to amend the Environment Protection Biodiversity Conservation Act, which would introduce a “water trigger”, subjecting CSG projects to extra scrutiny. In submissions to a Senate inquiry, The Australian Coal Association said the legislation is “a duplication of existing laws and could threaten investment in the industry”. BHP Billiton echoed these sentiments, saying the changes may “diminish the competitive of the Australian resource sector and without any benefits in improved environmental standards.
In its Civil Contractors Survey released yesterday, JPMorgan has found civil construction contractors will face dipping profit margins as an increasing number of projects are cancelled and infrastructure spending remains low. This negative outlook is exacerbated by the prediction that construction in the resources sector will peak in the next six to 12 months. “This increases competition for available work, which pushes down margins and makes it very difficult to maintain order book size,” said Anthony Passe-De Silva, one of the report’s authors.
The Australian Financial Review
BHP Billiton, the Australian Industry Group, the Australian Mines and Metals Association, the Master Builders, the National Farmers Federation and the Australian Chamber of Commerce have all attacked the government’s proposed changes to the Fair Work Act, saying the bill “tilted the industrial relations system too far to unions”. In submissions to a Senate inquiry, resource industry leaders said rising costs, skill shortages, the industrial relations regime and taxes were damaging the competitiveness of projects in Australia, and that the changes would “add unnecessary regulatory burden and cost, and will not assist the industry’s productivity”.
PricewaterhouseCoopers consultants have released a new report that says mining companies should be focusing on improving productivity above recovering larger volumes of minerals. Based on data from the Australian Bureau of Statistics, the report said the output of minerals per hour worked in the sector dropped by 56 per cent between 2001-02 and 2011-12, during which time use of capital assets also became 44 per cent less productive. It is important to note, however, that these figures are influenced by the greater amount of construction work done at the beginning of the decade.
Japan’s Ministry of International Trade and Industry is urging Japanese utilities to seek cheaper gas contracts from Australia in an effort to end the pricing formula that links gas imports to the crude oil price, which currently forces the country to pay some of the highest gas prices in the world. “This is a huge burden for the Japanese economy,” said Nobuo Tanaka, former head of the International Energy Agency. However, Australian LNG producers have argued that oil-linked prices under long-term contracts are necessary to get massively expensive LNG projects off the ground and provide adequate returns.
Coal & Allied, a subsidiary of Rio Tinto, has criticized the NSW planning process after the Land and Environment Court overturned an extension approval for its Hunter Valley-based mine. The company said the rejection by the court put 1300 jobs at risk. Coal & Allied acting managing director Darren Yeates said the failure of the planning system was “significantly obstructing investment and job creation”.
Vice-chairman of HIS Daniel Yergin has told a liquefied natural gas conference in Houston this week that the forecast increase in US exports will push global prices down and force high cost countries like Australia to reconsider their business models. US LNG projects will be able to ship gas to most ports around the world for a cost of around $US12 per MBTU, lower than the current rate offered by most Australian suppliers. “The US will set a new competitive benchmark for gas around the world,” Dr Yergin said.
Northern Territory chief minister Adam Giles has said he will not implement policy that reserves NT gas for local use, saying it would “stifle business and crimp investment”. This follows Rio Tinto’s deal with the government to secure gas supplies for its Gove alumina refinery in Arnhem Land, which has led many to fear there will be a shortfall in supply of local gas. “Our plan is to attract investment and realise the Territory’s potential,” Mr Giles said.
Ausdrill and Emeco have downgraded earnings due to project delays, falling commodity prices and increased competition, highlighting the negative outlook for the mining exploration and equipment hire sector. RBC Capital Markets analyst Andrew Heath said the slowing pace of contract wards suggested mining construction was reaching its peak.
The West Australian
West Australian Treasurer Troy Buswell has warned that Woodside’s announcement on Friday to shelve its onshore processing plant at James Price Point would have serious implications for the state’s economy, saying it contributed to WA’s unwanted reputation as a “high-cost place to do business”. Buswell said rising labour costs were a big component of WA’s falling productivity levels, labelling the Maritime Union of Australia’s claims for pay and conditions “exorbitant and ridiculous”.
Shadow Agriculture Minister John Cobb said the current live export regime would continue under the Coalition as per the Exporter Supply Chain Assurance Scheme. However, Cobb did vow to make big changes, saying it would “work with industry to make it more user-friendly for both exporters and our customers while maintaining animal welfare”. WA Liberal senator Chris Black said the ESCAS should be completely overhauled: Australian Bureau of Agricultural and Resource Economics and Sciences show beef exports to Indonesia fell by 40 per cent to 12,000 tonnes in the first five months of 2012-13. Live cattle exports were down from 145,000 to 98,000 over the same period as Indonesia reduced import quotas.