Team Australia to pay billions for new oil-vulnerable infrastructure

One would think that an increase of oil related taxes would be used to reduce oil dependency and fund public transport infrastructure, especially as the Iraq war has entered yet another critical phase. Not in Australia.

The government in Canberra has taken advantage of lower oil (and therefore petrol) prices to increase the customs tariff from 38.143 cents to 38.6 cents a litre in November 2014. This 1.2% is modest, but further bi-annual increases (in February and August) will add up over time.

Fig 1: Australian petrol prices for the last 12 months

http://www.aip.com.au/pricing/pdf/Weekly%20Petrol%20Prices%20Report%20-%2026%20October%202014.pdf

The Government says “every cent” will be spent on new roads

It means the price of petrol will rise by about half-a-cent per litre from November 10. The Government says “every cent” will be spent on new roads.

http://www.abc.net.au/news/2014-10-28/tax-on-petrol-to-increase-on-november-10/5846882

We know what that means

Fig 2: Northern portal of Sydney’s NorthConnex proposal

http://northconnex.com.au/

10/10/2014 Sydney’s risky NorthConnex tunnel will not solve congestion problem
http://crudeoilpeak.info/sydneys-risky-northconnex-tunnel-will-not-solve-congestion-problem

28/10/2014

EMMA ALBERICI, PRESENTER: The Prime Minister is tonight calling on the Opposition to join “Team Australia” by backing his controversial budget just a day after calling for a “mature and sensible” economic debate.

Fig 3: Dark view: what the government plans to rake in

The challenge comes as Labor branded the Government “sneaky”, after it by-passed the senate to raise fuel taxes.

The Prime Minister says while he regrets the increase, he’s denying it’s a broken election promise and Tony Abbott is blaming Labor for leaving the budget in a mess.

http://www.abc.net.au/lateline/content/2014/s4116745.htm

The budget is in a mess because company tax dropped substantially after the financial crisis – which was triggered by peaking crude oil production in 2005-2007:

Fig 4: Australia’s company tax growth stalled in 2008

28/5/2014 Australian budget hit by global financial crisis and high oil prices (part 1)
http://crudeoilpeak.info/australian-budget-hit-by-gfc-and-high-oil-prices-part-1

9/6/2014
Australian GDP per capita growth slowed while oil prices went up (part 2 of budget 2014 series)
http://crudeoilpeak.info/australian-gdp-per-capita-growth-slowed-while-oil-prices-went-up-part-2

Bizarrely, the government wants to spend motorist’s money to make business with low-tax companies:

Transurban pays just $3 million tax, despite collecting $1 billion in tolls
5 Aug 2014
http://www.smh.com.au/business/transurban-pays-just-3-million-tax-despite-collecting-1-billion-in-tolls-20140805-100le8.html

A Federal subsidy of $ 405 million is proposed to be paid for Trabsurban’s NorthConnex tunnel (plus the same amount from the NSW government). See page 15 in “Building Australia’s Infrastructure”

Fig 5: Contribution of fuel excise to roads funding

http://www.budget.gov.au/2014-15/content/glossy/infrastructure/download/Infrastructure.pdf

Oil prices down

Oil demand seems to have weakened as oil prices in the last years were too high

Fig 5: OECD demand is down by 1 mb/d over 3 years

http://www.iea.org/oilmarketreport/omrpublic/charts/

And this happened despite US tight oil production skyrocketing:

Fig 5: Tight oil boom in the US

Note that EIA data for tight oil are estimates and can be revised retrospectively for 2 years.

How long will this boom last?

Geoscientist David Hughes has just published an updated report

Drilling Deeper

October 2014
A reality check on US government forecasts for a lasting tight oil & shale gas boom

Fig 6: Bakken and Eagle Ford will peak starting in 2016

http://www.postcarbon.org/wp-content/uploads/2014/10/Drilling-Deeper_FULL.pdf

This peak will cause a confidence crisis because the public is being told that shale oil and gas is an energy revolution to last for decades to come – while it actually is a retirement party.

Lower oil prices will result in an earlier peak as break even cost prices are approached. The following article lists the analysis of several companies.

FACTBOX-Breakeven oil prices for U.S. shale: analyst estimates

23/10/2014
Bernstein Research said this week that about a third of U.S. shale production would be uneconomical if oil prices were to fall to $80 per barrel
ROBERT W. BAIRD EQUITY RESEARCH (Oct. 14)
“We estimate $73 as the weighted average breakeven point for U.S. supply.”
SHALE FIELD BREAKEVEN OIL PRICE PER BARREL
Eagle Ford Liquids Rich $53
Wolfcamp North Midland $57
Bakken Core $61
Niobrara Extension $64
Eagle Ford Oil $65
Niobrara Core $68
Wolfcamp South Midland $75
Bakken Non Core $75
Texas Panhandle $81
Mississippi Lime $84
Barnett Combo $93
http://www.reuters.com/article/2014/10/23/idUSL3N0SH5N220141023

The following article sums up many issues which are not usually discussed in the main stream media

Eight pieces of our oil predicament

By Gail Tverberg

22/10/2014

Oil prices are set by our networked economy.
“Inadequate affordability” may be the number one issue
Too much oil in too short a time can be disruptive
The balance between supply and demand is being affected by many issues, simultaneously
Low oil prices today ($80 for WTI) may not be enough to fix the world’s economic growth problems
Saudi Arabia, and in fact nearly all oil exporters, need today’s level of exports plus high prices, to maintain their economies
The world really needs all existing oil production, plus more, if the world economy is to grow
The cutback in oil supply due to low prices is likely to occur in unexpected ways

http://ourfiniteworld.com/2014/10/22/eight-pieces-of-our-oil-price-predicament/#more-39325

Conspiracy theories

From the Guardian

18/10/2014
US and Saudi Arabia are acting in concert in a bid to hurt Iran and Russia.

From NPR

28/10/2014
Another theory is that Saudi Arabia is manipulating the markets to try to quash competition, especially from new oil producers like those involved with the Canadian oil sands and the shale revolution in the U.S

A surprisingly peaceful response from Iran:

Khamenei Warns of Dependency on Oil

23/10/2014
Iran’s Supreme Leader Ayatollah Ali Khamenei, commenting on oil prices losing a quarter of its value since June, said Iran’s dependence on oil revenues is putting its economy at the mercy of major powers.

“Running our country on oil revenue leaves Iran’s economy at the mercy of major policymakers in the world,” Khamenei said. “Instead of relying on its mineral resources, Iran should rely on the talent and potential of its youths. Only then would Iran’s economy become immune to the influence of powers.”

http://www.uskowioniran.com/2014/10/khamenei-warns-of-dependency-on-oil.html

NIOC: Budget Should Be Based on $70 p/b for Iran Oil

27/10/2014
The National Iranian Oil Company (NIOC) said today that Iran’s next year budget should be based on $70 per barrel oil revenue. The current Iranian budget is based on $100 per barrel, creating major budgetary shortfall due to declining oil prices. The government has not proposed new pricing for next year’s budget.

http://www.uskowioniran.com/2014/10/nioc-budget-should-be-based-on-70-pb.html

Government selling its health fund Medibank

Medibank to rake in up to $5.5bn: Cormann

20/10/2014
Senator Cormann was dealing with the more serious business of the coalition’s long time commitment of selling health insurer Medibank Private on Monday. The sale is now estimated to raise $5.5 billion, which will be used to fund its asset recycling initiative. That provides states and territories an incentive to sell off assets and use those monies to re-invest in productivity enhancing infrastructure, like roads.
http://www.news.com.au/national/breaking-news/medibank-to-rake-in-up-to-55bn-cormann/story-e6frfku9-1227096412089

This means the proceeds from selling Medibank will be used to subsidize road tunnels with health damaging exhaust stacks. Unbelievable

Wahroonga residents form Community Against Polluting Stacks to protest M1-M2 exhaust stack near prestigious schools
9/4/2014
http://www.dailytelegraph.com.au/newslocal/the-hills/wahroonga-residents-form-community-against-polluting-stacks-to-protest-m1m2-exhaust-stack-near-prestigious-schools/story-fngr8i1f-1226879058601

Conclusion:

The Australian government is pulling out all stops to scrape up whatever it can to subsidize its ambitious, but doomed road tunnel program. US shale oil has given the world a unique chance to prepare for the underlying decline in conventional oil. Australia is missing this opportunity by increasing rather than reducing its oil vulnerability. It seems Saudi Arabia has lost its swing role, whatever the reason. This can only mean highly volatile oil prices. Investors have already lost billions on privately financed, bankrupted road tunnels in Brisbane and Sydney. Now more tax is wasted, too.

Team Australia to pay billions for new oil-vulnerable infrastructure

The Government says “every cent” will be spent on new roads

Oil prices down

How long will this boom last?

Conspiracy theories

Government selling its health fund Medibank

Conclusion:

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