GLADSTONE, AUSTRALIA — There aren’t many cruises that feature a dolphin swimming with her calf, 4.5 million tons of coal stockpiles, the southern end of the Great Barrier Reef, the world’s highest concentration of bulldozers, and the construction of three liquefied natural gas (LNG) plants. But in Gladstone, Queensland, midway up Australia’s east coast, this is just another free industry sponsored harbor cruise. Meant to acquaint the community with the large-scale development taking place on nearby Curtis Island, the second-largest island in the Great Barrier Reef, the tour brings together locals, tourists, at least one journalist, and industry professionals from the gas companies — noticeable by their neon work shirts — every few months for two hours together on a slow moving vessel.
A couple weeks before the harbor cruise I visited interior Queensland, where thousands of gas wells are being drilled across a vast landscape, to see the beginning of the natural gas production process. I wrote about how this rapid expansion of coal-seam gas (referred to in the U.S. as coalbed methane) — a form of predominantly methane natural gas extracted from coal beds deep underground — has elicited strong local opposition from a number of stakeholders, including the unlikely bedfellows of conservative, property-owning farmers and environmentalists.
Now at the other end of the 300-mile pipeline, visible on the cruise as it emerged from under the harbor channel and slithered towards the LNG plants, a similarly controversial ending to the production process, in which ships are filled with LNG before departing for Asia, is underway. Multinational companies, all levels of government, and whistleblowing non-profits are weighing in on the future of the proliferating fossil fuel export industry, while many of those being directly affected are concerned about the long-term economic and environmental impact of the new plants being built.
Both Gladstone, with a population of about 30,000 people, and Curtis Island are swarming with men in neon work shirts — engineers, boat operators, managers, construction workers, and the like. On Curtis Island 65 buses brought to the island by barge (there’s no bridge, one of many technological hurdles being overcome, according to the tour) transport local workers to and from construction sites. Thousands of workers live in quickly constructed apartments that will be torn down once the LNG plants are complete. They work six days a week for four weeks, with nine days off in between.
Over the years, the Gladstone region has gone from an agricultural community to a manufacturing hub (Australia’s largest alumina smelter opened in 1982) to a fossil fuel export port. On top of the new LNG plants, it’s already the world’s fourth-largest coal export terminal, with another large facility nearing completion. Whether viewed from land or sea, the juxtaposition of smoke stacks and coal trains on either side of the harbor with the marine environment is a recurring reminder of the dramatic changes taking place. On the cruise, the mood was light and the technology on display impressive, but we heard little outside of the main talking points about job creation and energy production.
It was only that evening at a small community meeting held in downtown Gladstone that I heard the other side of the story in a presentation by Mark Ogge, a Public Engagement Officer at The Australia Institute, an independent think tank, and Jan Arens, a local geologist who works as an engineer for a water treatment company. About 12 people attended the evening meeting, which focused on the economic impacts of Australia’s fossil fuel boom, specifically in the Gladstone region, whereas the tour must have included well over 100.
Based on the many people I met during my week in the area, just because someone is willing to speak out about the industry doesn’t make them anti-industry. More likely they want development to proceed in a safe and sustainable manner, with proper consideration given to all potential impacts — not just the bottom line — and all stakeholders included in discussions. Instead, many believe the Gladstone Ports Corporation, the harbor authority, fast-tracked projects and the Queensland and federal government jumped hastily on board — in no small part because of the vast tax income they stand to reap from all the new business. This was another joke on the cruise — that the plants provide heaps of new money for governments to waste.
Like many things I heard on the cruise, I heard a different version later at the presentation.
According to Ogge, in relative terms, the amount of taxes fossil fuel companies pay is rather small compared to other industries. “They always talk about their huge contributions to taxes and royalties,” Ogge said. “It’s true they make a very significant contribution, but they pay less than other industries basically because they’re really heavily subsidized.”
Ogge said that while the theoretical corporate tax rate in Australia is 30 percent, the average industry only pays 21 percent after deductions. However, last year coal industries had an effective corporate tax rate of just eight percent and natural gas six percent.
Regarding royalties, Ogge said that they are payment for raw materials, just like a baker has to buy wheat or a builder bricks — which they don’t count as a tax. “But in the mining industry they’re buying raw materials from the people, so they’re paying us for them,” Ogge said. “So technically you could count that as a tax, but that’s not the way other industries are treated.”
This polarizing polemic rages on far beyond Gladstone Harbor. In late July the Australian Petroleum Production and Exploration Association launched a multi-million-dollar ad campaign to counter what it considers vast misinformation against the coal-seam gas industry and “ideological opposition” based on emotion.
According to The Australian, Santos chief executive David Knox, in a letter to staff, warned that “left unchallenged, this vocal minority can create misinformation that greatly impacts the understanding of our industry by communities, government, and even you the people who underpin our success.”
For now Gladstone is capitalizing on the boom, which is indisputably underway. Four cranes construct just as many high rises along a downtown that is essentially just one main street. I roomed at a hostel where several construction workers were staying long-term. The shortage of accommodation is fueled by the immense workforce constructing the three LNG plants: the Queensland Curtis LNG Project, Australia Pacific LNG (a joint partnership between Origin, ConocoPhillips and Sinopec), and Santos’s GLNG. All three plants are being built by Bechtel, the largest construction and engineering company in the United States and the 5th-largest privately owned company in the U.S.
On the tour we heard about jobs, and how just one of the three gas companies was currently employing 11,000 people. Ogge disputed this notion of fossil fuel industry job creation from several angles. “At the moment each company employs about 5,000 to 6,000 people for the construction phase,” Ogge said. “When they go into operation they will employ about 1,000 each, and that’s in Gladstone and in all the gas fields. So in 2015 we can expect a huge drop in labor.”
Combating these jobs claims was the heart of Ogge’s presentation: That the fossil fuel industry’s rapid and unchecked growth has actually crowded out other sectors, causing businesses to close or downsize, which ultimately costs jobs. He argues that over the last decade manufacturing jobs have been decimated by the fossil fuel boom that’s driven the Australian dollar to record highs and created a severe shortage of skilled labor.
“Just look at the industry’s own analysis,” Ogge said. “When these companies do their Environmental Impact Statements they have to look at economic impacts, which are usually hidden away somewhere in the 1,000 page document. Clive Palmer’s ‘China First’ mine acknowledges in its own economic analysis that this single coal mine in Queensland will destroy over 3,000 non-mining jobs and knock out $1.25 billion worth of manufacturing activity. Similarly, the 100 percent foreign-owned Arrow Energy coal-seam gas project in Queensland acknowledges that it will destroy 1,600 jobs — around 1,000 of those are in manufacturing.”
This is a symptom of what’s known as the “Resource Curse” or “Dutch disease,” in which a country rich in natural resources allows other industries to be crowded out only to pay the price later. An increase in revenues from natural resources can make a nation’s currency stronger, which results in other exports becoming more expensive for other countries to buy, thus leaving the manufacturing sector less competitive.
LNG is just regular natural gas refrigerated to -162 degrees Celsius (-260 degrees F), at which point it changes into a liquid state and takes up 1/600th less volume. Once the three LNG plants are completed Australia will go from being the third largest exporter of LNG to the first, overtaking Qatar by 2020. Gas companies often promote natural gas as a transition fuel; meant to wean us (or more critically, China) off coal in the lead up to the golden age of renewable energy. However recent research suggests that the carbon footprint of coal-seam gas, from underground retrieval to turbine delivery, is similar to coal. Quantifying coal-seam gases GHG emissions is still very much a work in progress, as things like fugitive emissions (uncontrolled leaks) are hard to quantify.
“If you look at the Environmental Impact Statements in detail it turns out some of these projects aren’t even selling to Chinese takers, and none of them are gong to be offsetting coal fired power stations,” Arens said. “So it’s an add-on fuel, not a transition fuel.”
The water around the harbor side of Curtis Island is opaque, and does not evoke Reef-like imagery. As the crowd gazes starboard at the 100-meter tall flare towers and chuckles along to fireworks jokes, on other side a massive bund wall (a retaining wall designed to prevent inundation or breaches) made up of dredge spoil passes unnoticed. According to the Australian Marine Conservation Society, dredging for the LNG projects has thus far totaled over 15 million tons. That’s not including what’s being dug up for the new Wiggins coal terminal nearby, which will add 24 million tons of annual coal export capacity to the already 80 million capacity at the harbor.
Dredging from both projects has been linked with the declining health of the harbor marine ecosystem as well as that of the greater Reef, with a number of scientists speaking out about the severe negative impact it’s having on everything from seagrass to sea turtles. That’s why seeing two happily frolicking dolphins at the beginning of the tour was so auspicious, and prompted a sustained banter about the possibility of them being planted specifically for the occasion.
Recently an independent review panel was granted more time to assess the health of Gladstone Harbor and the impact of port developments on the Great Barrier Reef as part of the preparation of a report for UNESCO when they return next year to determine if the Reef will be listed as a World Heritage Site in Danger. If this happens it would become one of the few Sites in Danger to be overseen by a developed country.
Curtis Island was nearly unadulterated biologically, aside from a small community living on the southern end, before the gas companies set up shop. Now the island is partitioned into an industrial precinct and an environmental management precinct. According to Arens, the main reason the LNG plants are being built on Curtis Island and not on the mainland where there are “thousands of hectacres of unused state land that they can’t find takers for” is purely economic. “The cryogenic pipelines that bring the LNG from the plants to the boats is hellishly expensive,” Arens said. “They simply wanted to make it easier for gas people to make profits. And I object to that profoundly. When we make a promise to the world we should bloody well keep it.”
Arens was referring to Australia’s commitment to stewarding the Great Barrier Reef, a World Heritage Area. The U.S. is wrapped up in this controversy as well, as the U.S. Export-Import Bank was recently taken to court by environmental groups for funding one of the LNG projects on Curtis Island. U.S. banks aren’t allowed to fund any global activities that compromise World Heritage Property.
Over the weekend an original musical called “Boomtown” played to large crowds spread out across the Gladstone Harbor lawn as part of the greater Queensland Music Festival, which thanks the Gladstone Ports Corporation (GPC) for generous assistance on its website. The musical illustrated the town’s rise to international significance as an industrial powerhouse, with not only coal and gas but also Australia’s largest aluminum and cement plants.
But booms often lead to busts, and the lasting outcome of the rapid industry expansion onto Curtis Island is yet to be determined. GPC reports state that jobs and dollars will continue their upward trends for decades to come, and Australian Petroleum Production and Exploration Association director Michael Bradley recently said that even once the Curtis Island plants were operational, 69 percent of the revenue would stay in Australia.
Again, Ogge begged to differ. He said that the mining industry is 83 percent foreign owned — around three billion dollars of which comes from the U.S. government’s Ex-Im Bank — so 83 percent of after-tax profits go to overseas shareholders. “Other countries don’t do this,” Ogge said, giving the example of Norway’s large sovereign wealth fund created by their long-term vision when managing their natural resource reserves. “In Australia resources are a one trick pony; once they’re gone, they’re gone. We will not get lasting benefits.”
When the harbor cruise docked I noticed the set of “Boomtown” on the marina lawn as we disembarked. All that remained was the scaffolding. The weekend boom was over, but the community remained, as families picnicked, sailboats raised mast, and joggers passed by.
Gladstone’s main street lies within 500 meters of the path the LNG tankers will take to Curtis Island, according to Arens. The Society of International Gas Tanker and Terminal Operations (SIGTTO), the industry standard for LNG best practices, states that LNG ports must be located where LNG vapors from a spill or release cannot affect civilians. The U.S. Department of Energy defines the smallest of three “Zones of Concern” surrounding LNG vessels as being 500 meters with the largest being 3,500 meters, or 2.2 miles. In case of a major incident, everything within Zone One would likely be destroyed. In Zone Three death by asphyxiation or injury from fire or explosion is possible.
To be clear, LNG has been safely delivered for over 40 years without a major accident. According to the U.S. Department of Energy, over the life of the industry eight marine incidents worldwide have resulted in LNG spills but no cargo fires have occurred. This is an excellent safety record compared with refineries and other petrochemical plants. However, according to Arens, there’s an average of one major shipping incident in the Gladstone Harbor every year.
In a 1997 SIGGTO report, “Site Selection and Design for LNG Ports and Jetties,” it states in section 9 — HUMAN ELEMENT:
“Accident reports show that effective risk management, whether in port or at sea, is often frustrated by an inability to completely obviate human error … Indeed, the large majority of shipping casualties continue to occur as a result of the human element.”
That human element is what “Boomtown” and the industry tours are trying to capture, but once the industry machinery starts churning, the people involved — the people nearby — can seem more like cogs than stakeholders.
“If we lose one of these LNG ships, and the gas meets an ignition source, that’ll be one hell of a spark,” Arens said. “So what are we going to do with the community if that happens? I’ve asked government how they are going to respond and I get no response. So what do you do as a citizen? I don’t know.”
The controversies unfolding in Australia are an indication of what will soon be taking place across the North American coastline as cheap, abundant gas makes LNG exports ever more appealing and companies jockey for high stakes profits.
According to the Federal Energy Regulatory Commission there are more than 110 LNG facilities operating in the U.S. performing a variety of services, with about a dozen currently acting as import/export terminals and 20 proposals awaiting review by the Energy Department.
Before the vast deployment of hydraulic fracturing and horizontal drilling across the U.S. in the last few years, the conventional wisdom was that America would become increasingly dependent on LNG imports for domestic supply of natural gas. This unexpected underground shift has taken industry attention away from coastal communities and repositioned it on hotbeds of drilling in the interior — for the time being. With a surplus of natural gas now available, increasing LNG exports (and all the accompanying fuss that goes along with building new facilities or updating underused ones) is already in the pipeline.
In July, a bipartisan group of U.S. senators called on the Energy Department to speed up its planned review process for proposals to ship U.S. LNG abroad. The Department of Energy has already approved two new LNG terminals, in Louisiana and Texas, with more approvals likely to be made over the next year. According to a Citigroup analysis, North America could be poised to supply nearly 20 percent of the global LNG market by 2020.
No person is an island, and islands aren’t really even islands in the globalized world. LNG facilities like the ones being built on Curtis Island will soon be cropping up along the North American coastline. As citizens — coastal, inland, wherever — are we ready for this next explosive energy-related boom?