22-05-2013, 07:05 PM
With lucky country falling from grace, investors should start to be wary over mining concepts that is being marketed on SGX... Caveat Emptor
http://www.afr.com/p/national/resources_...Gbha37ZeOJ
Resources boom falls to earth
PUBLISHED: 10 HOURS 12 MINUTES AGO | UPDATE: 0 HOUR 0 MINUTES AGO
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Regulatory changes are making it harder for new mining projects to get built. Photo: Erin Jonasson
GEMMA DALEY
The federal government’s chief commodities forecaster has warned that the shelving of $150 billion mining and energy projects over the past year and $29 billion in cost blowouts means the resources construction boom has peaked and is likely to fall sharply through the next half decade.
The Bureau of Resources and Energy Economics reported that $350 billion in committed and potential projects may slump to $25 billion in 2018, half of what it was when the boom began in 2003.
Economists said the difficult economic transition would take years because other parts of the economy wouldn’t cover the fall in resources investment. Interest rates will stay low because of weak economic activity.
“Australia [is] facing a massive multi-year adjustment as mining investment returns to normal,” said Barclays economist Kieran Davies.
Mining companies, which face a sharp drop in commodity prices, have told the government that high wage costs and increased red and green tape threaten new projects. Industry sources say the cost of environmental approvals on big projects are up to 5 per cent of the total value.
Australia has the world’s most expensive oil and gas workforce, a third more than US workers and almost double the global average, according to Hays and Oil and Gas Job Search analysis.
Minerals Council of Australia chief executive Mitch Hooke said complacency about mining, emerging protectionist sentiment and backsliding on economic reform threaten the industry and wider economy.
“Our country’s attractiveness as a place to do business in a highly globalised industry is slipping due to a combination of rising costs, declining productivity, increasing regulation and new taxes,” he said. “It is a wake-up call for our policymakers.”
In its six-monthly update on the commodities market, the Bureau of Resources and Energy Economics said the decline in the number of committed projects was part of an emerging trend.
SHARP FALL IN INVESTMENT
The bureau published forecasts of the value of committed projects for the first time. They show a sharp fall in investment as the existing projects are completed and few new ones take their place. The value of committed projects will fall from 18 per cent of GDP now to 11 per cent by the end of 2015 to an almost negligible level in 2018, according to the bureau and economists.
Projects cancelled or delayed over the past 12 months, worth a cumulative $149 billion, include Woodside Petroleum’s Browse LNG project at James Price Point in Western Australia and Sunrise LNG in the Timor Sea, BHP Billiton’s Olympic Dam expansion in South Australia and Port Hedland outer harbour in Western Australia and Aquila’s West Pilbara Iron Ore Mine, also in WA.
Delayed projects include Xstrata’s Wandoan mine, Rio Tinto’s Mount Pleasant project and Peabody Energy’s Wilkie Creek expansion. Two projects, BHP Billiton’s Saraji East and the Monto coalmine, were removed from the bureau’s list of major projects in preparation.
The total value of existing committed projects didn’t fall from the $268 billion estimate at the end of last year only because the cost of the remaining projects, mostly natural gas pipelines, liquefaction facilities and export terminals, blew out by $29 billion.
The investment value covers 73 projects at the committed stage compared with 87 in the previous period, the bureau said. Liquefied natural gas, natural gas and petroleum accounted for about 77 per cent of the expenditure and iron ore 8 per cent, it said.
“It is a stark warning that Australia’s international competitiveness is at risk,” Australian Petroleum Production and Exploration Association chief executive David Byers said.
BOOM IN GLOBAL GAS USE
“In APPEA’s view, one of the key causes is the intrusive and burdensome regulatory environment that contributes to rising costs and uncertainty. Reduced exploration expenditure is a concerning lead indicator.”
Resources make up the bulk of Australia’s $200 billion in shipments, with 20 per cent in iron ore and another 15 per cent in coal.
Australia’s resources slowdown will coincide with a forecast boom in global gas use of 44 per cent in the next two decades as countries seek energy which emits less carbon dioxide. Prices for iron ore and coal have fallen, making some new mines or mine expansions uneconomic.
Iron ore entered a bear market last week, joining copper and gold, on concern that slowing growth in China, the world’s biggest buyer, will hurt demand. This year will probably signal “death bells” for the commodities supercycle, according to Citigroup.
Standard & Poor’s GSCI gauge of 24 raw materials is down 2.6 per cent this year, after an almost fourfold advance since the end of 2001.
Regulatory changes are also making it harder to get new projects built. Coal seam gas projects in NSW such as AGL’s Camden and Metgasco’s Casino were pushed back a step after Premier Barry O’Farrell decided to impose a moratorium on new coal seam gas wells near residential areas.
WATER TRIGGER PLAN PROPOSED
The federal government wants to impose a so-called water trigger in the Environmental Protection and Biodiversity Conservation Act that would give it the power to independently analyse the impact of a resources project on the water table, making it more complicated to get some projects approved.
The lobby group for the petroleum industry says it wasn’t consulted about the policy or other changes, which “give greater heed to populist sentiment than scientific evidence” .
The Reserve Bank of Australia’s quarterly statement this month forecast the economy’s softness will continue until mid-2014 because of the uncertainty over the dollar and the federal budget.
Doubts about the economy’s transition from the mining investment boom to other drivers of growth left the door open to more interest rate changes.
“The approaching peak in resource investment, the high level of the Australian dollar and ongoing fiscal consolidation are all likely to weigh on growth over the next year or so, while at the same time the low level of interest rates is helping to support demand,” the RBA said.
The bureau did offer some hope. In addition to its likely scenario, it forecast a possible scenario for resources investment which would peak above $300 billion in 2014 and be close to $150 billion by 2018.
“The difference between the likely and possible scenarios represents an enormous investment opportunity for Australia,” its report says.
Mr Hooke, of the Minerals Council, said: “If Australia is to continue to enjoy the benefits of the mining boom, we must acknowledge our drifting international competitiveness and set about remedying the problem.”
http://www.afr.com/p/national/resources_...Gbha37ZeOJ
Resources boom falls to earth
PUBLISHED: 10 HOURS 12 MINUTES AGO | UPDATE: 0 HOUR 0 MINUTES AGO
SHARE LINKS:email
inShare
submitprint-font+fontReprints & permissions
Regulatory changes are making it harder for new mining projects to get built. Photo: Erin Jonasson
GEMMA DALEY
The federal government’s chief commodities forecaster has warned that the shelving of $150 billion mining and energy projects over the past year and $29 billion in cost blowouts means the resources construction boom has peaked and is likely to fall sharply through the next half decade.
The Bureau of Resources and Energy Economics reported that $350 billion in committed and potential projects may slump to $25 billion in 2018, half of what it was when the boom began in 2003.
Economists said the difficult economic transition would take years because other parts of the economy wouldn’t cover the fall in resources investment. Interest rates will stay low because of weak economic activity.
“Australia [is] facing a massive multi-year adjustment as mining investment returns to normal,” said Barclays economist Kieran Davies.
Mining companies, which face a sharp drop in commodity prices, have told the government that high wage costs and increased red and green tape threaten new projects. Industry sources say the cost of environmental approvals on big projects are up to 5 per cent of the total value.
Australia has the world’s most expensive oil and gas workforce, a third more than US workers and almost double the global average, according to Hays and Oil and Gas Job Search analysis.
Minerals Council of Australia chief executive Mitch Hooke said complacency about mining, emerging protectionist sentiment and backsliding on economic reform threaten the industry and wider economy.
“Our country’s attractiveness as a place to do business in a highly globalised industry is slipping due to a combination of rising costs, declining productivity, increasing regulation and new taxes,” he said. “It is a wake-up call for our policymakers.”
In its six-monthly update on the commodities market, the Bureau of Resources and Energy Economics said the decline in the number of committed projects was part of an emerging trend.
SHARP FALL IN INVESTMENT
The bureau published forecasts of the value of committed projects for the first time. They show a sharp fall in investment as the existing projects are completed and few new ones take their place. The value of committed projects will fall from 18 per cent of GDP now to 11 per cent by the end of 2015 to an almost negligible level in 2018, according to the bureau and economists.
Projects cancelled or delayed over the past 12 months, worth a cumulative $149 billion, include Woodside Petroleum’s Browse LNG project at James Price Point in Western Australia and Sunrise LNG in the Timor Sea, BHP Billiton’s Olympic Dam expansion in South Australia and Port Hedland outer harbour in Western Australia and Aquila’s West Pilbara Iron Ore Mine, also in WA.
Delayed projects include Xstrata’s Wandoan mine, Rio Tinto’s Mount Pleasant project and Peabody Energy’s Wilkie Creek expansion. Two projects, BHP Billiton’s Saraji East and the Monto coalmine, were removed from the bureau’s list of major projects in preparation.
The total value of existing committed projects didn’t fall from the $268 billion estimate at the end of last year only because the cost of the remaining projects, mostly natural gas pipelines, liquefaction facilities and export terminals, blew out by $29 billion.
The investment value covers 73 projects at the committed stage compared with 87 in the previous period, the bureau said. Liquefied natural gas, natural gas and petroleum accounted for about 77 per cent of the expenditure and iron ore 8 per cent, it said.
“It is a stark warning that Australia’s international competitiveness is at risk,” Australian Petroleum Production and Exploration Association chief executive David Byers said.
BOOM IN GLOBAL GAS USE
“In APPEA’s view, one of the key causes is the intrusive and burdensome regulatory environment that contributes to rising costs and uncertainty. Reduced exploration expenditure is a concerning lead indicator.”
Resources make up the bulk of Australia’s $200 billion in shipments, with 20 per cent in iron ore and another 15 per cent in coal.
Australia’s resources slowdown will coincide with a forecast boom in global gas use of 44 per cent in the next two decades as countries seek energy which emits less carbon dioxide. Prices for iron ore and coal have fallen, making some new mines or mine expansions uneconomic.
Iron ore entered a bear market last week, joining copper and gold, on concern that slowing growth in China, the world’s biggest buyer, will hurt demand. This year will probably signal “death bells” for the commodities supercycle, according to Citigroup.
Standard & Poor’s GSCI gauge of 24 raw materials is down 2.6 per cent this year, after an almost fourfold advance since the end of 2001.
Regulatory changes are also making it harder to get new projects built. Coal seam gas projects in NSW such as AGL’s Camden and Metgasco’s Casino were pushed back a step after Premier Barry O’Farrell decided to impose a moratorium on new coal seam gas wells near residential areas.
WATER TRIGGER PLAN PROPOSED
The federal government wants to impose a so-called water trigger in the Environmental Protection and Biodiversity Conservation Act that would give it the power to independently analyse the impact of a resources project on the water table, making it more complicated to get some projects approved.
The lobby group for the petroleum industry says it wasn’t consulted about the policy or other changes, which “give greater heed to populist sentiment than scientific evidence” .
The Reserve Bank of Australia’s quarterly statement this month forecast the economy’s softness will continue until mid-2014 because of the uncertainty over the dollar and the federal budget.
Doubts about the economy’s transition from the mining investment boom to other drivers of growth left the door open to more interest rate changes.
“The approaching peak in resource investment, the high level of the Australian dollar and ongoing fiscal consolidation are all likely to weigh on growth over the next year or so, while at the same time the low level of interest rates is helping to support demand,” the RBA said.
The bureau did offer some hope. In addition to its likely scenario, it forecast a possible scenario for resources investment which would peak above $300 billion in 2014 and be close to $150 billion by 2018.
“The difference between the likely and possible scenarios represents an enormous investment opportunity for Australia,” its report says.
Mr Hooke, of the Minerals Council, said: “If Australia is to continue to enjoy the benefits of the mining boom, we must acknowledge our drifting international competitiveness and set about remedying the problem.”