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John Rolfe-Eidos Sustainable Development in Resource Intensive Regions
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John Rolfe-Eidos Sustainable Development in Resource Intensive Regions

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  • 1. The economics and impacts of resource developments John Rolfe CQUniversity
  • 2. Resource developments are becoming more contested
    • Tradeoffs between mining, agriculture and communities becoming more obvious
    • Developments of coal seam gas in Darling Downs and other areas is bringing concerns to a head
      • Loss of good agricultural land
      • Risk of impacts on water quality below ground
      • Risk of impacts on water quality above ground
      • Changing face of communities
      • Pressure on infrastructure
      • Unknown risks for people living close
  • 3. Economics of resource development in regional areas
    • Resource developments generate economic benefits in regional areas
    • Key knowledge gaps are:
      • How big are the benefits?
      • Where do they accrue?
      • How to balance up the benefits against other impacts and risks?
    • Addressed in this talk with a focus on coal and gas industries
  • 4. Coal mine case study
    • Medium sized mine in Bowen Basin
        • 3.8 Mtpa of coking coal
        • 16 years of mine life
        • Footprint to cover 2,030 ha of grazing country
        • Up to 90 hectares of native vegetation may also be cleared
        • Other environmental impacts managed on site
        • Site will be rehabilitated to grazing post-mining
      • Major tradeoff in resource use is between using land for cattle production or for coal mining
  • 5. Applying economic analysis
    • What are the net benefits of allocating land resource to coal mining or cattle production?
      • Identify the profit streams of using land for coal production, including all environmental and land rehabilitation costs
      • Compare to the profit streams of maintaining for cattle production
      • Net present value (NPV) of streams identifies which is best option
  • 6. Broad estimates of annual revenues & profits by coal price
  • 7. Comparing benefits and costs of coal production At lowest expected price, and discounted over 16 years at 10%, coal will generate $552M in profits and royalties Maximum profit from cattle production in future on same resource is $3M
  • 8. How does the same analysis apply to Coal Seam Gas in Surat Basin?
      • Involves joint use of land
        • small proportion reserved for well heads and pipelines
      • Wells can operate for up to 20 years
      • Density varies, but minimum spacing of 750 metres (approximately 1 well per 200 ha)
  • 9. Gas well development is low intensity
      • Well footprint of about 60m x 60m (.4ha) when drilling, and 15mx15m (.02ha) post drilling
      • assume 1ha/well with pipelines and roads
      • Loss of productive land is 0.5%
      • Ag. Land prices range from $950/ha to $6000/ha
    Image Copyright Origin Energy, 2002.
  • 10. Australia Pacific LNG example
    • Plans to develop up to 10,000 wells in Surat basin over 30 year period
      • Up 10,000 hectares out of agricultural production (for 20 years)
        • At average land price of $3500/ha = $35M in perpetual lost Ag. profits
    • Annual increase in Gross State Product of > $900M in Surat Basin for 30 years
    • Assuming 10% of GSP is profit and royalties, PV at 10% discount rate is $850M.
    • CSG generates > 20 times economic return of agriculture
  • 11. Why the level of protest?
    • Given the economics of allocating land to CSG, why the level of protest?
    • Three reasons tested
    • Distribution effects
    • Externalities (Water)
    • Lifestyles and assumed property rights
  • 12. Reason 1: distribution effects
    • Concern is that regional area will not share in the wealth
    • But already substantial coal, gas, oil and power generation in southern Qld
    • CQU team did assessment of resource expenditure in every LGA in Qld in 2010.
    • Results show that there are already large impacts of resource industries in southern Qld
      • 1,185 direct jobs in the Darling Downs SD
      • $430M business and community spend
  • 13. Salary payments in Queensland LGAs with top ten expenditure areas labelled
  • 14. Supplier expenditures in Queensland LGAs with top ten expenditure areas labelled
  • 15. Total addition to Gross Regional Product by LGA
  • 16. Input-output models used to estimate flow-on effects
    • Multipliers based on Aust. 2006 accounts
    • Different to normal I-O or GE models in three main ways
      • Modelled impact of initial spending by SD and LGA
      • Used actual spend data in 2009-10
      • Counts both operating and capital expenditure
  • 17. Selected comparisons across LGAs
  • 18. Modelled employment impacts
    • For every resource sector person currently living in the Surat basin (Darling Downs) there are approximately:
      • Another 2.4 jobs locally
      • Another 2.9 jobs in region
      • Another 1.5 jobs in Brisbane
    • But there is likely to be some substitution between regional and Brisbane effects
  • 19. Distribution of economic impacts
    • Increasing share of economic benefits going to major centres and coastal zones
      • Home location of workforce
      • Home location of contractors
      • Spending flows in business supply chain
      • Increasing economic leakages as wealth increases and population becomes more mobile
    • While regional areas benefit from major projects, only a share is retained
      • Level of expenditure capture appears to be falling in mining and smaller communities
  • 20. Reason 2: Externalities
    • Concerns are that land use change will generate other costs
      • Business, housing and labour force pressures
      • Social and community pressures
      • Impacts on water resources
      • Issues of CSG water and salt disposal
  • 21. APLNG example
    • APLNG will cover approximately 570,000 ha of gas fields (joint use with agriculture)
    • Agriculture has concerns that there will be impacts on water tables and other issues.
      • Assume in hypothetical worst case scenario that there are perpetual declines in agricultural productivity of 10%
        • At average land price of $3,300/ha, total value of lost production is $200M.
        • All agricultural losses would still be less than production value ($850M > $35M + $200M)
      • Range of other sustainability reasons for avoiding external impacts
  • 22. Reason 3: Lifestyle and assumed property rights
    • Concerns about inconvenience issues
    • Concerns about impacts on perceived property rights
    • Perceptions that there are major impacts on good agricultural land
    • Perceptions about changes to communities and lifestyles
  • 23. Conclusions
    • CSG has very high level of economic returns relative to agriculture
      • Makes it difficult to argue against introduction of CSG industry
      • Focus should be on minimising key problems
        • Ensuring regional development impacts are positive
        • Avoiding and minimising negative externalities
        • Minimising lifestyle disruptions and encouraging culture change