VZCZCXRO6808
RR RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHPB
DE RUEHBN #0147/01 3502054
ZNR UUUUU ZZH
R 152054Z DEC 08
FM AMCONSUL MELBOURNE
TO RUEHC/SECSTATE WASHDC 4834
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHZU/APEC COLLECTIVE
RUEHPT/AMCONSUL PERTH 1491

UNCLAS SECTION 01 OF 02 MELBOURNE 000147 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EIND ECON ETRD AS
SUBJECT: Commodities Downturn Threatens Northern Territory 
 
MELBOURNE 00000147  001.2 OF 002 
 
 
Summary 
------- 
 
¶1. (SBU) The Northern Territory's (NT) economy remains healthy, but 
is showing early signs of slowing as the global financial crisis 
works its way through Australia.  The Territory's key mining and 
tourism sectors have softened since September while the NT 
government continues to tout the US$20 billion INPEX liquefied 
natural gas plant as its best buffer against future downturns.  The 
NT's heavy dependence on minerals, however, makes it particularly 
vulnerable to global declines in commodities prices.  End Summary. 
 
Global Slowdown Chips Away at NT Economy 
---------------------------------------- 
 
¶2. (SBU) Despite recent government assurances to the contrary - 
Northern Territory (NT) Treasurer Delia Lawrie said in early 
December that "there is no sign yet that the global financial crisis 
has impacted our economy" - there is evidence that the NT economy is 
slowing.  During a December 8-10 visit to Darwin, NT Chamber of 
Commerce CEO Chris Young told post that he expects the Territory's 
2008 annual growth rate to slow from earlier predictions of 6.6 
percent to 4 percent.  He stated that resource exploration has 
dropped off recently due to lower commodity prices.  In addition, 
tight credit has harmed smaller miners who rely on commercial 
lending to run their businesses. 
 
¶3. (SBU) There are other indications that the Territory's mining 
sector is slowing.  The McArthur River silver/lead/zinc mine 
announced in early December that it would lay off 200 of its 600 
employees due to softening demand.  According to Chris Young, Rio 
Tinto's Nhulunbuy bauxite mine is also suffering from reduced 
Chinese demand.  During a visit to Port Darwin, General Manager 
Terry O'Connor pointed out stockpiles of manganese which have been 
growing since orders ceased in mid-September.  (Note: Mining and 
resource exploration account for 25 percent of the NT's gross state 
product (GSP) and employ approximately 4,600 of its 217,000 
residents.  In 2006-2007, the Territory had the highest per capita 
GSP in Australia (A $63,548/US $41,942) largely thanks to the 
resource boom.  The NT's dependence on minerals as a percentage of 
its economy is second only to that of Western Australia.  End 
note.) 
 
Tourism - The NT's Wild Card 
---------------------------- 
 
¶4. (SBU) According to Suzanne Morgan, Manager of International 
Operations for Tourism NT - a government sponsored tourism advocacy 
group - travel to the Territory is noticeably down.  Morgan said 
that the wet season (November to April) is traditionally slower than 
the dry season, so the full effect of the financial crisis will not 
be visible until May 2009.  The United States is the fourth largest 
source of tourists for the NT, and during fiscal year 2008, 9.1 
percent fewer U.S. visitors traveled to the Territory.  The NT's 
tourism industry is second in importance as a percentage of GSP only 
to the resources sector, providing 11.7 percent of the Territory's 
jobs and catering to approximately 1.4 million visitors each year. 
 
The INPEX Insurance Policy 
-------------------------- 
 
¶5. (SBU) INPEX, a Japanese oil and gas firm, has selected Darwin as 
the future site for a US $20 billion liquefied natural gas (LPG) 
operation.  The plant will bring gas onshore from the Ichthys field 
off the coast of Western Australia for processing in Darwin. 
According to Brian O'Gallagher at the Chief Minister's Major 
Projects, Asian Relations and Trade Department, the INPEX plant will 
provide the Territory with as many as 2,300 jobs and has already 
stimulated the development of additional residential housing for 
anticipated population increases. 
 
¶6. (SBU) Pending an environmental approval in October 2009, a 
Commonwealth production license in November 2009, and a final 
investment decision by INPEX in 2010, construction of the plant is 
due to commence in 2010 with the first export of LNG slated for late 
2014/early 2015.  The NT government sees this project as a 
cornerstone of the Territory's economy.  Chief Minister (the 
Territory's equivalent to a Premier) Paul Henderson stated in early 
November that the "financial crisis will impact everywhere, but with 
the strong Territory economy, the INPEX investment and the stable 
Australian financial system, we are in a good position to withstand 
the fallout." 
 
Snapshot of the NT Economy 
-------------------------- 
 
¶7. (U) In addition to resources and tourism, the NT's economy is 
dependent on primary industries including cattle, fish, prawns, 
 
MELBOURNE 00000147  002.2 OF 002 
 
 
pearls and mangoes.  Primary industries employed 3,000 people in 
2006-2007 and accounted for A$508 million (US$335 million) of the 
Territory's GSP during this period (3.5 percent of GSP).  Ten 
percent of Australia's defense forces are stationed in the NT, 
providing A$245 million (US$162 million) in infrastructure and 
peripheral industry investment.  Government administration, defense, 
health and education together accounted for 20 percent of the NT's 
GSP in 2005-06.  The most significant U.S. company doing business in 
the NT is ConocoPhillips, which operates a LNG plant in Port Darwin 
and employs approximately 120 people.  Most of the plant's LNG is 
sold to Japanese buyers. 
 
¶8. (U) The Northern Territory's GSP in 2006-2007 was A$14.49 billion 
(US$9.56 billion); unemployment was 3.8 percent.  Approximately 64 
percent of the NT's goods exports went to Japan, China and 
Indonesia; only 7.4 percent went to the United States.  According to 
Brian O'Gallagher, the Territory is focused on taking advantage of 
its location to transform itself into the principal gateway between 
Australia and Asia.  An uninterrupted railway from Adelaide to 
Darwin, completed just a few years ago, allows freight to move from 
Australia's main population centers overland rather than around the 
continent by sea freight to Asia. 
 
Comment 
------- 
 
¶9. (SBU) Confidence remains high in the Northern Territory where the 
resource boom has helped reduce unemployment to all time lows and 
has allowed the Territory to claim the title of highest per capita 
state income in Australia, although that figure masks poverty and 
poor living conditions for much of the NT's large indigenous 
population.  As Rio Tinto's December 11 announcement that it would 
lay off 14,000 workers worldwide illustrates, however, the Territory 
is particularly vulnerable to a downturn in the global commodities 
market.  Lay-offs at the McArthur River mine and the growing 
stockpiles of manganese at Port Darwin are ominous signs of tough 
times ahead for the Northern Territory's economy. 
 
THURSTON