THE DISTILLERY: Browsers beware

Jotters sound warning bells for Australian competitiveness as they consider the key takeaways from Woodside's Browse closure.

The decision by Woodside Petroleum to dump its onshore gas processing plant at James Price Point in the Kimberley is being celebrated by some as a victory for environmentalists and lamented by others as symptomatic of Australia’s declining competitiveness. Who’s right? The answer is pretty clear, but there are some important takeaways for all of us.

Fairfax’s Michael Pascoe is first to lament the claims from environmentalists that it’s their victory in the Kimberley, both for the accuracy of the claim and the realities of it.

“Wonder if they spare any thought for the indigenous land owners who wanted the project and now won’t receive the employment and billion dollars that, used wisely, could have transformed their marginalised community. But it wasn’t the anti-development campaigners who stopped James Price Point, though they certainly didn’t help and might have made a marginal project more marginal. In the end, as Woodside chief executive Peter Coleman made clear, it was the money: processing at James Price Point no longer adds up.”

The Australian Financial Review’s Chanticleer columnist Tony Boyd similarly observed Coleman’s announcement, noting that the chief put some distance between the environmental objections and the company decision.

“Chanticleer believes that conveniently ignores the growing power and influence of environmental activists in Australia, particularly in relation to the development of the country’s oil and gas resources. The fact is that environmentalists are much more active, much more strategic and much more influential than they have ever been. They have had enormous success on the east coast of Australia in forcing politicians to significantly tighten the regulations covering coal seam gas. This success has involved unusual partnerships, including the joining of arms by the Greens, the Nationals, the Liberals and powerful commentators who have previously expressed disdain for environmental issues.”

Be that the case, Business Spectator’s Stephen Bartholomeusz neatly explains how supply and demand side pressures are the primary factors behind the decision, with the cost of construction running into a high Australian dollar and an easing commodity boom. But there’s another force on the horizon that speaks more pointedly at the challenges facing Australia in the post-boom era.

“The producers are also aware of the pressure, at this stage mainly from the Japanese, to change the way LNG is priced, de-link it from oil prices and effectively price it in relation to the US Henry Hub domestic gas prices which are being increasingly driven by the influence of surging shale gas production. If any of the US shale gas is to find its way into Asia in meaningful volumes (the US is still considering whether to approve any of the 18-odd applications to build export LNG terminals against the backdrop of fierce lobbying from US manufacturers against LNG exports) it probably won’t be until the end of this decade at the earliest. There is an opportunity, with whole-of-government co-operation, an intense focus on costs by the producers and the use of lower-cost technologies and development options to get the current wave of projects under construction and consideration into the market, lock up long-term contracts with customers and start generating attractive returns on the investments before the threat posed by a US energy surplus materialises. The Browse announcement adds some urgency and focus to the debate about the necessity of a coordinated and urgent effort to improve national productivity and competitiveness.”

The Herald Sun’s Terry McCrann is likeminded with Bartholomeusz that the Woodside news reflects Australia’s declining competitiveness, adding that it’s coming right at the end of the global financial crisis.

The Australian’s John Durie adds that the Woodside news wasn’t the only potential wake-up call for Australian industry, with BHP Billiton chairman Jacques Nasser warning that the Australian carmaking sector could be doomed.

“Gas and cars are very different industries but some of the causes are the same, with unsustainable costs pressures being high among them.”

The question for Woodside is, what now? The Australian’s Matt Chambers notes an apparent schism between Woodside and its major shareholder and Browse partner Royal Dutch Shell.

“Just before a Woodside press conference, Royal Dutch Shell broke what has been two years of letting Woodside do the talking on Browse on behalf of what were previously antagonistic joint venture partners. Shell, Woodside’s biggest shareholder and the second biggest shareholder in the Browse project after Woodside, made clear its preference for the big gas project’s development. 'Shell’s floating LNG technology is the fastest, most economic and the best technical solution available for Browse,' Shell Australia chair Ann Pickard said. Woodside chief Peter Coleman, whose company has made its name as a builder of onshore projects, did not buy in.”

Meanwhile, Fairfax’s Malcolm Maiden notes a potential avenue for Woodside that would be a boost for shareholders.

“Woodside is aware of the possibilities. Chief financial officer Lawrie Tremaine said in February that the group was not under pressure to sanction projects, and would be in a 'great position' to return cash to shareholders if projects were delayed. Chief executive Peter Coleman seconded that on Friday after the Browse announcement, saying that if growth opportunities developed more slowly than expected, Woodside could 'consider additional measures to accelerate the return to investors'.”

Just returning for a moment to the issue of Australia’s exporting competitiveness, The Australian’s economics editor David Uren writes that Japan’s money printing program could force the Reserve Bank of Australia to think seriously about how to pull the Australian dollar down. Parity with the US dollar we can deal with surprisingly well, but $US1.10 could be a serious problem.

In other economic news, The Australian Financial Review’s Andrew Cornell looks at the decline of Australia’s cash economy against the case of Sweden, which is famously ahead of just about anybody on this trend.

The Australian Financial Review’s David Bassanese gives his own personal appraisal of the state of debate about education, the national broadband network, an east coast high-speed rail line and superannuation in the context of where public dollars should be spent in what amounts.

Turning to the markets, The Australian’s Robin Bromby looks at the maddeningly contradictory forecasts for the gold price and the various explanations for Friday’s plunge.

In company news, The Australian Financial Review’s James Chessell shines a light on whispers that Seven Group billionaire Kerry Stokes is starting to elevate his son Ryan to participating in some of the day-to-day running of the company. This is thought to be the seeds that will eventually bring the relationship between Stokes and his trusted right-hand man, Peter Gammell, to an end.

And finally, Fairfax’s Michael West breaks apart the argument that regulators need to focus on educating the public rather than prosecuting financial swindlers. While increasing the overall financial literacy of the population is undoubtedly important – probably compulsory, given the rising wealth tied up in superannuation – the fact of the matter is that it can’t be an ‘every man for himself’ system.

Superannuation could not have been established if that was the bargain the Hawke-Keating governments had struck with the public. Top marks to West.