An article was recently published in The Age describing how the shale oil and gas boom in the US is contributing to a “manufacturing renaissance” in that country.
The new production capacity, especially in Texas, is delivering energy to businesses in the region for a fraction of what is being paid in other parts of the world. There is no global price for gas, as either infrastructure or shipping is required to bring the gas to its user, and shipping is expensive and technically involved, as detailed in the article. The new energy glut is creating a similar to situation to what has been occurring in the Pilbara in recent years, with previously small and remote towns in these resource provinces suddenly being flooded with money and new workers. All manner of industries that are either energy-intensive or that process oil or gas in some way (for example plastics manufacturing) are now globally competitive in the US.
This got me thinking about Western Australia’s own supply of natural gas, and the potential advantage that this might offer us. Thanks to the Dampier to Bunbury Natural Gas Pipeline (soon to be extended all the way to Albany), almost all of the major population centres in the State have access to the gas from the north-west, and under current government policy, 25% of this is reserved for domestic use. Perhaps Perth, or one of the regional cities along the pipeline could become a centre for energy-intensive or hydrocarbon-based manufacturing, as is happening in Texas.
I suspect that the biggest economic barrier to a development such as that will be the high cost of labour in Western Australia, and its distance from major global markets. These factors have always been with us, and have no doubt been the reason that such industries haven’t developed in the first place. However, any exporting industries that can survive under current conditions will only gain in competitiveness as the dollar, inevitably, returns to a more normal exchange rate. It’s also worth remembering that we will still need to do produce something that the rest of the world once the resources boom is behind us.