The Bureau of Resources and Energy Economics (BREE) has estimated that committed investment in resources and energy major projects in Australia increased to a record $268.4 billion at October 2012.
BREE makes the claim that “the total committed expenditure on Australia’s oil and gas projects is comparable to the total cost of the Apollo Moon Program in 2012 prices.”
What does it all mean?
- The Government’s chief resources forecaster wanted to give some sense of the enormity of all the committed oil and gas projects, and they have concluded that it’s like landing man on the moon. More specifically, BREE noted that “the total committed expenditure on Australia’s oil and gas projects is comparable to the total cost of the Apollo Moon Program in 2012 prices.” In other words, it’s a big deal, and the enormity of the work to be done is probably not recognised by the average Australian.
- Anyone claiming the China boom is over had better think again. There are 87 committed resource projects in Australia – greater than the average number of projects recorded over the past eight years. And the value of committed projects has hit fresh record highs. In short, there is a lot of work to be done. And most countries would give up almost anything to be in Australia’s position.
- The big change is that work has become more concentrated into “mega” projects – projects with an investment value above $5 billion. And the work is further concentrated on the type of project (largely LNG) and concentrated by region (largely Western Australia, Queensland, NSW and Northern Territory). While the resource regions will benefit in the construction phase, they will also be significant beneficiaries of on-going income, employment and activity for the regions in the longer-term.
- It’s important that Australians get over their short-term focus and instead concentrate on the investment and production implications of the resource projects over the next 5-10 years.
What do the figures show?
- The Bureau of Resources and Energy Economics (BREE) has estimated that there are 87 committed resource or energy projects as at October 2012 valued at a record $268.4 billion.
- There are also 106 Publicly Announced projects valued between $91.0-133.2 billion; there are 171 projects at the feasibility stage valued at $291.9 billion; and 24 completed projects totalling $11.9 billion.
- BREE notes: “The $268.4 billion investment value consists of 87 projects that have received a final investment decision including 51 minerals projects, 18 gas and petroleum projects and 18 infrastructure projects.”
“There are 11 ‘mega projects’ identified in the report that account for $201 billion, or 76 per cent of the total committed investment in resources and energy major projects. Most of these are LNG projects located in the Pilbara region of Western Australia and Gladstone in Queensland.”
“In the six months to October 2012, 10 projects worth $13.2 billion were committed to after receiving a positive final investment decision. The largest of these was for an additional LNG train at the Australia Pacific LNG plant at Gladstone, Queensland.” - To be expected, there has been some scale back of investment plans. Paraphrasing BREE: There have been 10 projects, worth $13.2 billion, that progressed to the Committed Stage of development. By comparison, in the six months from November 2011 to April 2012, 21 projects were committed to with a combined value of $45 billion. However that included the Ichthys LNG project in the Northern Territory which alone accounted for $33 billion of this total in the April 2012 listing.
What is the importance of the economic data?
- The Bureau of Resources and Energy Economics (BREE) provide estimates of committed resource and energy projects in Australia every six months. The information is useful in tracking workflow for mining, engineering and construction sectors.
What are the implications for interest rates and investors?
- The Reserve Bank will be encouraged by the record pipeline of resource projects as well as other data today showing record construction spending. The chances of a December rate cut have been downgraded.
- It’s clear that some investors listened too hard to the “China boom is over” school of thought when they should have been doing their own homework. The pipeline of resource projects remains significant. But the onus is also on mining and engineering firms not to drop the ball and ensure that costs are contained so the significant projects can go ahead as planned without deferral or scaleback.
- The Aussie dollar will be supported over coming years by the large investment pipeline.
- The extent of scaleback of plans over the past six months has only been modest once account is made of the Ichthys LNG project.