High Cost, Falling Productivity May Place $100B LNG Investments in Australia at Risk

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By Vittorio Hernandez | November 27, 2012 9:55 AM EST

A day after Gina Rinehart, Australia's richest woman, warned of the country losing its competitiveness in the global market due to wrong policies, Chevron's top man in Australia waved a similar red flag.

Chevron Australia Managing Director Roy Kryzwosinski pointed out that resource ventures in Australia cost 40 per cent higher in Australia compared to the U.S., but Australia's workforce was 60 per cent less productive compared to their American counterpart.

As a result of this imbalance, Mr Kryzwosinski said that over $100 billion in liquefied natural gas (LNG) investments in Australia are at risk. He blamed the carbon tax and other fiscal measures put in place by the Gillard government for causing the ballooning cost of running resource projects in Australia.

Chevron, an energy giant in the U.S., is building the $43-billion Gorgon LNG project and the $29-billion Wheatstone LNG Project in Western Australia. The Chevron official is expected to confirm within the next three weeks the escalating cost of constructing the Gorgon facility on Barrow Island.

"Industry confidence in making major capital investments is being affected by the current fiscal environment. This increases business cost, erodes international competitiveness and diminishes investor confidence," The Australian quoted Mr Kryzwosinski's Monday address at the Zone conference in Perth.

Reiterating Chevron's observation, Ian Bauert, Rio Tinto's managing director for China, pointed out in the same conference that from being the cheapest place to do business five years ago, Australia has become the most expensive.

He said Australia must correct these serious shortcomings to realise its aspirations spelled out in the Asian Century white paper that the Gillard government released in October 2012.

"Unless the focus of future debate is on addressing such issues, my feeling is we are likely to fall behind and seriously underachieve our potential in the Asian century," The Australian Financial Review quoted Mr Bauert.

Mr Kryzwosinski said to attract more resources investment, the Australian government should follow through on commitments to reform regulatory inefficiencies and end federal-state duplication. He also recommended that policies support and encourage future investments and workforce productivity improvements.

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