Three things are fundamentally wrong with the idea that the resources boom will end soon.
One is the notion that the party stops when the construction of a mine or processing facility is completed – when, in reality, that’s when it begins.
Another is the false premise that few new projects will be constructed beyond 2014, a claim that suggests people haven’t done their homework before indulging their addiction to media profile.
And a third is a misunderstanding of the processes under way in China, India and other nations undergoing industrialisation and urbanisation.
That misunderstanding has lead many to describe what’s happening in the resources sector as a “boom”. That’s a misnomer because a boom is a short sharp rise followed by rapid decline.
The demand for Australian resources results from significant structural change in the world economy, inspired in part by the emergence of new economic power nations which are seeking to lift the living standards of very large populations.
This is not a process to be measured in years. It will extend over decades. Property analyst Simon Pressley, recently named Australia’s Buyers’ Agent of the Year, calls it the “resources revolution”.
High ongoing demand for our resources will continue beyond my lifetime, notwithstanding the likelihood of a few jitters along the way. Australia is going to play a primary role in servicing global demand for ore, coal and gas.
The belief that the “boom” ends when construction of new mines and processing plants is completed is just bizarre. As Pressley pointed out in one of his Propertyology reports recently, this in fact is when it begins.
Australia currently has massive new projects under construction, with iron ore projects, coal mines and gas processing hubs, along with associated infrastructure like export facilities and rail links. But the nation doesn’t earn any export dollars until these projects are completed.
It’s only when they start shipping ore and coal and liquefied natural gas (LNG) that the dollars start to flow. And all the mega projects have proceeded with all or most of their future production under forward sales contracts.
The third fault line running through the “the boom is ending” argument is the erroneous notion that nothing will happen in Australia once the current crop of projects is completed. The proponents of this idea need to catch up on their reading – or get out of their offices and visit a few coalfaces.
Most of the big resources projects around Australia are yet to start construction or are just starting to crank up building work. There is so much more to come.
There have been dozens of major announcements over the past month or so, coinciding with those silly predictions that it’s all grinding to a halt. Here are just some of those relating to Queensland alone:
Queensland coal production is expected to more than double in the next eight years. In the same period Australia is expected to become the world’s largest gas exporter. A report from the Bureau of Resources and Energy Economics says Australia’s LNG exports could grow to 106 million tonnes by 2020. The report’s long-term projections also suggest big increases in exports of thermal coal and metallurgical coal.
The $23 billion Australia Pacific LNG project based in Gladstone is to be expanded. Origin Energy, ConocoPhillips and Sinopec have decided to add a second stage, having secured a 20-year supply contract with Japanese power company Kansai.
A coal seam gas (CSG) project in central Queensland is a step closer towards production, with the state government issuing terms of reference for an environmental impact statement. Arrow Energy’s Bowen Gas Project is one of two CSG developments that will form part of the company’s LNG project. Arrow will develop up to 7,000 gas wells over the next 40 years, each with a lifespan of 15 to 20 years. CSG will be transported from the Surat and Bowen basins to be liquefied at an LNG plant at Gladstone.
The $1.1 billion Fisherman’s Landing LNG project in central Queensland is going ahead, after Melbourne-based Molopo sold its Queensland CSG assets to PetroChina. The Chinese group will now begin talks with LNG Limited, which is behind an LNG plant at Gladstone, over a tolling agreement for gas from the Molopo acreage to be processed to be in the plant. Fisherman’s Landing is the smallest of the five LNG plants under construction or planned for development around Gladstone.
Yarwun 2, the $2.4 billion expansion of Rio Tinto Alcan’s Yarwun Alumina refinery, passed a major landmark recently when the first bauxite was fed into the new facility and Yarwun 2 began producing alumina. Eventually the plant will produce 3.4 million tonnes each year, compared with the current capacity of 1.4 million.
Xstrata has agreed to a $110 million pre-commitment for an expansion of the $2.5 billion Wiggins Island Coal Export Terminal at Gladstone, boosting the chances that the expanded port and the associated $1 billion Surat Basin rail project will begin exporting by 2016.
Stanmore Coal will bring 750 jobs to the Toowoomba and Surat Basin regions when it develops a Wandoan mine worth $380 million. Construction will begin in early 2014. The environmental impact statement for the mine says it could be operating and exporting before the end of 2015.
Mt Isa City Council has started the process to freeing up land for developers to build a new suburb of about 400 homes. The council feels the expansion of the resources sector in the area makes existing housing supply insufficient to meet coming demand.
We’ve also had major announcement of developments in Western Australia, South Australia, Victoria, New South Wales and the Northern Territory. Space doesn’t allow me to list them all.