Australia's North-West shelf gas project. A general equilibrium analysis of its impact on the Australian economy

The sheer scale of the North-West Shelf Natural Gas Project inevitably entails substantial consequences for the Australian and West Australian economies. In this paper an applied general equilibrium model is used to estimate the size of these effects. Expenditure during the construction phase stimulates the industries that supply the investment goods. This higher demand, however, is inflationary and so reduces the competitiveness of export and import competing industries. The net result is that the project does not have much impact on simulated real GDP during the construction phase. The production phase entails major increases in exports, in the output of industries supplying inputs to the project, and in real national income. However, the export surge causes the real exchange rate to appreciate, leading to deteriorating conditions in other internationally trading industries. Nevertheless, the upshot is an improvement in the balance of trade and an increase in real GDP of about 1% during a typical year of the production phase.