Australia: Capital expenditure on resources soars 21pc

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19 Nov 2010

Planned capital spending in Australia's minerals and energy sector hit a record $132.9 billion, soaring 21 per cent in six months. The Australian Bureau of Agricultural and Resource Economics, a government research group, today said investments in the energy and iron ore sector were driving the increase, with energy projects accounting for 70 per cent of the total and iron ore making up a further 13 per cent.
Booming demand for Australia’s mining and energy exports from Asian consumers has helped the country ride out the global financial crisis, but contributed to wage and inflation pressures that have seen the country’s central bank raise its policy interest rate by 1.5 percentage points over the past 13 months to 4.75 per cent.
Development costs for major resource projects, particularly in Western Australia, are rising sharply as companies compete for labour and materials.
The country’s Labour Price Index rose 3.4 per cent on the year in the third quarter, with the sharpest wage growth in the resource-rich states of Western Australia and Queensland.
Resources minister Martin Ferguson welcomed the outcome: “We’re seeing huge investment in an industry that is going from strength to strength,” he said.
“I expect this trend to continue, with more key projects potentially coming on line in the near future.”
The value committed to energy projects alone in the latest report exceeds all annual capital spending on the resources sector before 2007. Total capital expenditure in the industry didn’t breach $20 billion until as recently as 2006.
Abare deputy executive director Paul Morris said a handful of mega-projects had an outsized impact on the figures.
“The record value of advanced minerals and energy projects reflects, in part, the decision to proceed with the development of BG Group’s Queensland Curtis Island LNG facility and Rio Tinto’s commitment to expand its iron ore export capacity by 60 million tons over the next three years,” Mr Morris said.
The $132.9bn figure covered 72 advanced projects that were under construction, or committed, of which 26 were in the energy sector, 25 in minerals, 15 in related infrastructure projects and six involving mineral processing plants, Abare said.
Western Australia accounted for 70 per cent of the national total, thanks to seven oil and gas projects together worth $65.4bn and nine iron ore projects worth $16.9bn.
BG Group's Curtis Island accounted for more than half of capex committed in Queensland, which in turn accounted for 21 per cent of the national total.
Capital expenditure in the mining sector fell 8 per cent on the year to $34.8bn as companies cut back spending in the aftermath of the 2009 commodities slump, but is expected to rebound strongly to $54.8bn in 2011.
Total spending on exploration also fell for the first time since 2004, Abare said, slipping 5 per cent on the year to $5.7bn. However, this figure was still nearly double the average spend over the past 30 years and the third highest real-terms spending figure on record.
The change in capital committed to Australia’s resource sector has tracked the boom in commodities prices in recent years and in particular the opening up of Australia’s offshore oil and gas sector.
The $43bn Gorgon liquefied natural gas joint venture between Chevron Corp, Royal Dutch Shell and Exxon Mobil Corp, which reached a final investment decision in 2009, is the single biggest resources project undertaken in Australia, while the nearby Pluto LNG project operated by Woodside Petroleum will involve a $12.1bn capital spend.
Since Abare’s previous report in April, 17 new coal projects were added to its list and several major projects were completed, including Rio Tinto’s $US1.5bn Hamersley Iron Brockman 4 Project, the same company’s $US1.3bn Clermont coal mine, and the $US1.1bn NCIG export terminal at the coaling port of Newcastle in NSW.

Source: Dow Jones