Resources
and Energy
Major Projects
October 2013
© Commonwealth of Australia 2013
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Barber, J., Penney, K.,Shael, T., Cowling, S., Nicholson, P., 2013. Resources and
Energy Major Projects October 2013, Bureau of Resources and Energy Economics,
Canberra, November.
Cover image source: Shutterstock.
ISSN 978-1-921812-76-7 (Print)
ISSN 978-1-921812-77-4 (Online)
Vol. 3, no. 1
Postal address:
Bureau of Resources and Energy Economics
GPO Box 1564
Canberra ACT 2601 Australia
Email: info@bree.gov.au
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Foreword
The Resources and Energy Major Projects is a biannual snapshot of the stock of
investment in Australia’s resources and energy sectors and provides a projection of
the capital stock of expenditure over the medium-term. Over the past decade,
Australia has seen a rapid escalation in investment in resources and energy projects
fuelled by higher global commodity prices. In this time we have seen the emergence
of ‘mega projects’, projects valued in excess of $5 billion, which have accounted for
more than 50 per cent of the total value of investment over the past decade.
Australia has not been alone in seeing strong investment in resources and energy
projects. This global surge in investment has seen the supply of resources and energy
commodities catch up to, and in some cases exceed, the demand for these
commodities, leading to a corresponding softening of commodity prices. Combined
with rising costs this has seen a decline in the number of projects coming into the
investment pipeline in Australia. In addition, we have seen a rise in the number of
projects being delayed or changing scope as proponents consider their options.
Reflecting this, in the October 2013 listing there are 63 projects at the Committed
Stage with a combined value of $240 billion. This compares with 73 projects with a
combined value of $268 billion six months earlier. The fall in both the number of
projects and value is the result of more projects moving to the Completed Stage,
specifically high value ‘mega projects’, than being added. The number of projects at
the Publically Announced Stage has fallen by 21 since April 2013 with a fall in value
of between $12 billion and $19 billion.
The current phase of the commodity price cycle is presenting challenges for
investment in resources and energy projects. Forward projections indicate that
investment in the resources and energy sectors is likely to decline over the medium
term. However, there remains an opportunity to sustain high levels of investment
should projects at earlier stages of development proceed through the pipeline.
Australia is now seeing a transition from the investment phase of the resources
boom to the production phase as newly developed projects commence commercial
production. While the number of projects at the Committed Stage contracted, the six
months to October 2013 saw 18 projects completed at a record $30 billion. The
projects completed over the past twelve months have added considerably to
Australia’s production capacity and will support strong commodity export volumes
into the future with a lasting impact on the Australian economy.
Wayne Calder
Deputy Executive Director
Bureau of Resources and Energy Economics
3
Contents
Foreword ........................................................................................................................ 3
Contents ......................................................................................................................... 4
Executive summary ........................................................................................................ 5
Background to the Resources and Energy Major Projects Report ................................ 7
Exploration ..................................................................................................................... 9
Projects at the Publicly Announced Stage ................................................................... 11
Projects at the Feasibility Stage ................................................................................... 15
Projects at the Committed Stage ................................................................................. 19
Projects at the Completed Stage ................................................................................. 24
Outlook for resources and energy investment ............................................................ 28
4
Executive summary
This release of the Resources and Energy Major Projects Reports provides an update
on resources and energy project developments over the period May 2013 to October
2013. It comes at a time when the Australian resources boom is starting to transition
from a period of high capital investment to one where the projects start production.
There remains potential for further investment in Australia’s resources and energy
sectors; however, the latest commodity price cycle has peaked and the decline in the
prices of most commodities over the past 12–18 months has created more
challenging investment conditions.
As at the end of October 2013, BREE has identified 92 projects at the Publicly
Announced Stage of the investment pipeline with a combined value of between
$110 billion and $152 billion. The number of projects at the Publicly Announced
Stage has decreased by 21 since the end of April 2013 with a corresponding decrease
in value of between $12 billion and $19 billion. Projects at the Feasibility Stage have
also been affected by market conditions and lower commodity prices; as at the end
of October 2013 there were 162 projects at the Feasibility Stage with a combined
value of $208 billion. This is 12 projects and $24 billion less than at the end of April
2013.
In the six month period from (and including) May 2013 to October 2013, five projects
worth a combined $1.7 billion are identified as receiving final approval to commence
construction and have been moved to the Committed Stage. This is both the lowest
number and lowest value of projects moving to the Committed Stage in over a
decade. The number of projects at the Committed Stage decreased from 73 in April
2013 to 63 in October 2013. With this decline in project numbers, the value of
committed investment has decreased from $268 billion in April 2013 to $240 billion
in October 2013.
In the six months to October 2013, 18 resources and energy projects progressed to
the Completed Stage. Together, these 18 projects have a combined value of $30.3
billion which is the highest value recorded for project completions in a six month
period. The previous record for completed project value was the six months to April
2012 with $23.5 billion. Although 25 projects were completed in the April 2012
period, around $15 billion of the total value is attributable to the completion of
Woodside Energy’s Pluto LNG plant. While no $15 billion projects were completed in
the past six months, three valued at over $5 billion each were completed along with
six projects each valued at over $1 billion.
BREE’s projection for the decline in the existing stock of committed investment
remains broadly unchanged. The value of the existing stock of committed projects is
still projected to decline rapidly over the next four years in line with the completion
schedules of the mega LNG projects. As outlined in the previous Resources and
Energy Major Projects a substantial number of the high value projects that would
have sustained the record levels of investment in the resources and energy sectors
have been either delayed or cancelled. This trend appears to be continuing and an
additional 71 projects in the planning stages of the investment pipeline have been
5
delayed by a year, or more, in the past six months. The latest cycle of investment in
the resources and energy sector therefore appears to have peaked; however, with
over 250 projects still being planned there is the potential for a rebound in
investment over the outlook period in the right commercial and market conditions.
6
Background to the Resources and Energy Major
Projects Report
The Resources and Energy Major Projects is a biannual report released by the Bureau
of Resources and Energy Economics (BREE) that provides a review of the mining,
infrastructure and processing facilities projects that increase, extend or improve the
output of mineral and energy commodities in Australia. This edition of the report is
an update on project developments over the six months from May 2013 to October
2013 (inclusive). Its purpose is to measure the value of the current and potential
investment in the resources and energy sectors and provide an analysis of the key
trends and issues underpinning the level of investment.
Although there is substantial investment by resources and energy companies in
replenishing equipment, plant and other property, the focus of this report is on
‘major’ investments that are greater than $50 million and aim to develop, expand or
extend resource production. BREE gathers information on major projects from a
number of sources including company websites, ASX quarterly activity reports and
company media releases, and in some cases, from direct contact with company
representatives.
Proponents of resources and energy projects often use different planning processes
and assessment methods to support a Final Investment Decision (FID). Thus, there is
no standard project development model with clearly defined stages and terminology
that can be applied to every resources and energy project. To broadly represent the
general life cycle of a project BREE use a four-stage model of the investment pipeline
to measure the potential investment in Australia’s resources and energy sectors. To
be included on the major projects list that accompanies this report, there must be
evidence of project activities that support the project progressing to an FID within
the next five years.
The four stages in BREE’s investment pipeline model are:

Publicly Announced Stage. Projects at this stage are either at a very early
stage of planning (i.e. undertaking an initial feasibility study), have paused in
progressing their feasibility studies or have an unclear development path. As a
result, not all projects will progress from the Publicly Announced Stage to
become operational facilities. To include a project on the major projects list at
this stage, preliminary information on project schedule, planned output or cost
must be publicly available.

Feasibility Stage. This stage of the project development cycle is where the
initial feasibility study for a project has been completed and the results support
further development. This stage is characterised by further studies being
undertaken to finalise project scope, complete engineering designs, assess
environmental impacts and develop commercial plans. Projects at the Feasibility
Stage are less uncertain than those at the Publicly Announced Stage, but are still
7
not guaranteed to progress further as evaluations of commercial prospects have
not yet been finalised and all regulatory approvals are yet to be received.

Committed Stage. Projects at this stage of the development cycle have
completed all commercial, engineering and environmental studies, received all
required regulatory approvals and finalised the financing for the project. Such
projects are considered to have received a positive FID from the owner, or
owners, and are either under construction or preparing to commence
construction. Typically, projects at the Committed Stage have cost estimates,
schedules and output that are well defined and often publicly released.
Nevertheless, plans are subject to change due to schedule delays, scope changes
and cost overruns even after construction has commenced.

Completed Stage. The period of time that a project undertakes commissioning
or ramps up to full production varies; however, BREE first classifies a project as
being at the Completed Stage when they have substantially finished their
construction and commissioning activities to the point where initial commercial
level production has commenced. Projects remain at the Completed Stage for a
period of up to three years after construction so as to provide an on-going record
of the investment pipeline.
Figure 1: The stages of the investment pipeline
Please refer to page 3 of the Resources and Energy Major Projects – April 2013 PDF version.
Earlier stages of developing mining and energy projects, such as identifying deposits
and exploration activities, are not included in the model. While these activities
remain important, it is beyond the scope of this report to assess exploration
activities on a project by project basis. Instead, a summary and analysis of aggregate
exploration expenditure is provided.
8
Exploration
Overview
Exploration is an important precursor to the development of projects in the mining
investment pipeline. It is an investment in knowledge about the location of deposits
and the quantity of resources available to potentially support future development.
Thus, exploration activity is a useful indicator of possible future mining activity.
Before making the decision to undertake exploration activities, resources and energy
companies consider a number of factors to ensure the benefits of exploration
activities exceed the costs. These include prevailing and expected commodity prices;
regulatory environments; geological prospects and fiscal arrangements.
Prevailing market conditions have not been conducive to increased minerals
exploration activity. In an environment of lower commodity prices, companies have
had limited cash flows to direct to exploration. Reduced exploration may have longer
term implications, as known deposits are depleted through mining, identification of
new resources is required to sustain future output. Therefore, lower exploration
effort today could limit the ability to develop new projects when world demand
supports the next wave of project investment.
Exploration expenditure
In 2012–13 total exploration expenditure, including both minerals and petroleum
exploration, increased by 8 per cent relative to 2011–12 to total $8.0 billion* (see
Figure 2). However, the increase was not equally distributed with a sharp increase in
petroleum exploration expenditure (after several years of declines) more than
offsetting a decrease in minerals exploration expenditure.
Petroleum exploration expenditure increased by 47 per cent in 2012–13, relative to
2011–12, to total $4.9 billion, the highest on record. By comparison, minerals
exploration expenditure declined by 24 per cent in 2012–13 to $3.1 billion, with falls
across all mineral commodities. The largest declines were observed in coal and base
metals, which declined by 36 per cent to $557 million and 31 per cent to $577
million, respectively. Iron ore exploration expenditure declined by 14 per cent to $1
billion and gold by 16 per cent to $678 million.
Historically, the majority of Australia’s exploration expenditure has been directed to
identifying petroleum resources. In 2012–13, this trend continued and petroleum
exploration accounted for 61 per cent of total exploration expenditure. Petroleum’s
share of total exploration expenditure was slightly higher in 2012–13 than the 10
year average (around 55 per cent) as a result of higher petroleum exploration and
lower minerals exploration expenditure.
*
Values in this section are presented in 2013–14 dollars.
9
Figure 2:
Australian exploration expenditure 1980–81 to 2012–13
Please refer to page 5 of the Resources and Energy Major Projects – October 2013 PDF
version.
Greenfield and brownfield minerals exploration
Greenfield sites are locations that are not currently being mined and where
exploration activities for new potential mineral deposits are undertaken. Brownfield
sites already have operating mines in the vicinity with established supporting
infrastructure. Exploration in these areas seeks to identify additional resources.
Greenfield exploration is typically a greater risk than brownfield exploration because
there is greater uncertainty that activity will result in the discovery of an economic
deposit. Accordingly, exploration activity is not equally distributed across greenfield
and brownfield sites. Over the past few years, a greater proportion of exploration
activity has been directed to brownfield sites (see Figure 3).
Figure 3:
Exploration expenditure on greenfield and brownfield sites
Please refer to page 5 of the Resources and Energy Major Projects – October 2013 PDF
version.
In 2012–13, lower commodity prices and cost cutting initiatives at many mining
companies have resulted in a decrease in exploration activities. In both relative and
absolute terms, brownfield exploration decreased by more than greenfield
exploration in 2012–13. Exploration expenditure at greenfield sites decreased by 20
per cent, relative to 2011–12, to $1.04 billion while brownfield expenditure both
declined by 26 per cent to $2.1 billion. The number of metres drilled at both
greenfield and brownfield sites decreased by 26 per cent compared with 2011–12 to
2.7 million metres and 5.7 million metres, respectively (see Figure 4). Although there
was a drop in activity, the cost per metre drilled at greenfield sites increased by 9 per
cent while at brownfield sites it remained broadly unchanged (see Table 1).
Figure 4:
Exploration—metres drilled
Please refer to page 6 of the Resources and Energy Major Projects – October 2013 PDF
version.
Table 1:
Cost per metre drilled, 2003–04 to 2012–13 (in 2013–14 dollars)
2003
–04
2004
–05
2005
–06
2006
–07
2007
–08
2008
–09
2009
–10
2010
–11
2011
–12
2012
–13
Greenfield site
150
183
213
223
295
346
304
321
351
382
Brownfield site
205
196
226
251
283
300
286
324
368
367
Source: ABS.
10
Projects at the Publicly Announced Stage
Overview
Projects at the Publicly Announced Stage are usually very early in their development
and are typically undergoing an initial feasibility study to assess the commercial
aspects of developing an identified resource. Projects that have stalled in
progressing towards an FID and are investigating alternative development options
are also classified as Publicly Announced to reflect their longer planning times.
As they are still in early planning stages, projects at the Publicly Announced Stage
may not have finalised engineering designs or construction costs. To reflect this
uncertainty project costs are quoted as a cost band in the major projects list when
project costs have not been announced by the project proponent. In most cases this
is based upon an estimate developed by BREE using industry averages for similar
construction activities. The cost bands used by BREE in this report for Publicly
Announced projects are:

$0 – $249m

$250m – $499m

$500m – $999m

$1 000m – $1 499m

$1 500m – $2 499m

$2 500m – $4 999m

$5 000m+
Summary of projects at the Publicly Announced Stage
Lower commodity prices and slowing demand growth in key markets are starting to
affect the development of projects in Australia and there are an increasing number
of projects that are being delayed and cancelled. As at the end of October 2013,
BREE has identified 92 projects at the Publicly Announced Stage with a combined
value of between $110 billion and $152 billion (see Table 2). The number of projects
at the Publicly Announced Stage has decreased by 21 since the end of April 2013
with a corresponding decrease in value of between $12 billion and $19 billion. Of
these, fourteen projects progressed to the Feasibility Stage, eighteen were removed
from the major projects list, five new projects entered the list at the Publicly
Announced Stage and six projects were moved back from the Feasibility Stage.
Table 2:
Publicly Announced Stage project summary
Aluminium, Bauxite, Alumina
Number of projects
Indicative cost range
$m
3
1 000–2 000
11
Coal
19
16 885–19 635+
Copper
5
10 200–11 451+
Gold
9
1 065–1 815
Infrastructure
10
14 750–23 500+
Iron ore
19
35 784–55 784+
Lead, Zinc, Silver
2
65–315
LNG, Gas, Oil
9
24 500–26 750+
Nickel
4
2 000–4 000
Other commodities
7
1 371–2 371
Uranium
5
2 000–4 000
Total
92
109 620–151 621+
Iron ore projects remain one of the largest sources of potential investment in
Australia and at the end of October there were 19 projects worth a total of between
$35.8 billion and $55.8 billion at the Publicly Announced Stage. The number of iron
ore projects at the Publicly Announced Stage has not changed since April 2013, that
is, no iron ore projects identified in April 2013 progressed to the Feasibility Stage and
none were identified as being cancelled. There is increasing risk that a number of
iron ore projects may not progress beyond planning stages (including the Feasibility
Stage) and large projects have recently been delayed or put on hold rather than
progress to the Committed Stage. For example, high value iron ore projects such as
Aquila and AMCI’s $7.4 billion West Pilbara project and Grange Resources’
Southdown Magnetite project ($2.5 billion to $5 billion) have stalled in their
development and like most iron ore projects at the Publicly Announced Stage, have
an unclear development schedule. While iron ore prices currently support
investment, access to export infrastructure remains a challenge for emerging
developers of iron ore projects.
There are 19 coal projects at the Publicly Announced Stage with a combined value of
between $16.9 billion and $19.6 billion. The number of coal projects at the Publicly
Announced Stage is also unchanged since April 2013 with three projects removed
from the major projects list being offset by two new projects being added at the
Publicly Announced Stage and one project moving back from the Feasibility Stage.
The total value of coal projects at the Publicly Announced Stage has decreased by
more than $7.5 billion, primarily as a result of the removal of Glencore Xstrata’s
delayed Wandoan project (valued at over $5 billion). MacMines Austasia’s Project
China Stone coal mine in the northern Galilee Basin is the highest value coal project
at the Publicly Announced Stage and could increase Queensland’s production of
black coal by around 45 Mt per year, if it is developed.
Ten infrastructure projects remain at the Publicly Announced Stage with a combined
value of between $14.7 billion and $23.5 billion. This is three fewer projects and $4
billion to $7.7 billion less than reported at the end of April 2013. The drop in project
value is mainly a result of the removal of the Oakajee Port and Rail and Abbot Point
12
Terminal 2 projects from the major projects list. All of the remaining infrastructure
projects at the Publicly Announced Stage are iron ore (seven) or coal (three) related
projects. The highest value of these relate to developing new iron ore export
infrastructure in the Pilbara region of Western Australia such as the Pilbara
Independent Rail joint venture (over $5 billion), Aquila Resources’ Anketell Point port
($2.5 billion to $5 billion) and the South West Creek Development ($2.5 billion to $5
billion).
There are nine LNG, gas and oil projects at the Publicly Announced Stage, which is
three lower than reported in April 2013. Of the remaining nine projects, five are
offshore LNG projects, two are onshore LNG projects and two are domestic gas
projects. These nine projects have a combined value of over $24 billion, the largest
of which is the Woodside Energy led Browse LNG joint venture off the north-west
coast of Western Australia. This project was moved back to the Publicly Announced
Stage at the start of 2013 to reflect the likely schedule and planning changes
associated with the project proponents switching to a preferred floating LNG
development option.
Although gold prices have declined significantly over the past six months there
continues to be progress on a number of gold projects in Australia. The number of
gold projects at the Publicly Announced stage decreased from 12 in April 2013 to
nine in October 2013 as a result of three projects progressing to the Feasibility Stage.
In addition to these progressed projects, two new gold projects entered the major
projects list for the first time, offsetting the removal of two previously listed projects.
In total, the nine gold projects at the Publicly Announced Stage are valued at
between $1.1 billion and $1.8 billion. Each of these gold projects is estimated to cost
less than $500 million as they are generally lower capacity mines than the very large
gold projects that have been developed in recent years.
There are 14 metals projects, including copper, nickel, zinc, lead and aluminiumrelated projects, at the Publicly Announced Stage. This number has decreased by five
projects from April 2013 and is the net effect of four projects progressing to the
Feasibility Stage, four projects being removed from the major projects list, one new
project being added and two projects moving back from the Feasibility Stage. The 14
metals projects metals at the Publicly Announced Stage as at the end of October
2013 have a combined value of more than $13.3 billion. The largest of these is BHP
Billiton’s proposed expansion to its copper-gold-uranium Olympic Dam mine (over
$5 billion), followed by Oz Minerals’ proposed Carrapateena copper mine ($1.5
billion to $2.5 billion).
Continued weakness in uranium prices has started to affect the development of
planned uranium mines in Australia. Cameco’s Kintyre and Yeelirrie projects have
been moved back to the Publicly Announced Stage to reflect the estimated longer
planning time for these projects. Mega Uranium’s Lake Maitland project has been
removed from the major projects list although development of this deposit will now
proceed as part of Toro’s Wiluna project which is at a more advanced stage of
planning. In total there are five uranium projects at the Publicly Announced Stage
with a combined value of between $2 billion and $4 billion.
13
14
Projects at the Feasibility Stage
Overview
Projects that have progressed to the Feasibility Stage have undertaken initial project
definition studies and commenced more detailed planning such as Front-End
Engineering Design studies, Bankable Feasible Studies and environmental surveys in
support of finalising an Environmental Impact Statement. While there is an
opportunity to progress projects at the Feasibility Stage to the Committed Stage, this
is not guaranteed to occur. Projects at the Feasibility Stage have not been committed
to and are only potential investments that may occur under the appropriate
conditions. Therefore, the total value of projects at the Feasibility Stage cannot be
directly compared to the value of the projects at the Committed Stage to forecast
the future of capital investment in Australia’s resources and energy sectors.
Summary of projects at the Feasibility Stage
As with projects at the Publicly Announced Stage, progress on projects at the
Feasibility Stage over the past six months has been affected by market conditions
and lower commodity prices. As at the end of October 2013 there were 162 projects
at the Feasibility Stage with a combined value of $208 billion (see Table 3). This is 12
projects and $24 billion less than at the end of April 2013 (see Figure 5). The lower
value of projects at the Feasibility Stage in October is primarily due to 19 projects
being removed from the major projects list after either announcements from the
proponents that their project would not proceed or a period of 12 months or more
of insufficient activity on the project to indicate it could progress further.
Figure 5:
Number of uncommitted projects
Please refer to page 10 of the Resources and Energy Major Projects – October 2013 PDF
version.
15
Table 3:
Summary of projects at the Feasibility Stage
NSW
Qld
No.
Valu
e $m
Aluminium, Bauxite,
Alumina
Coal
12
4 010
37
Copper
1
420
Gold
1
Infrastructure
WA
NT
No.
Valu
e $m
1
200
3
49
913
893
2
349
58
1
123
7
925
3
2 277
10
21
620
2
3 600
Iron ore
1
2 900
18
Lead, Zinc, Silver
2
417
1
32
857
70
LNG, Gas, Oil
2
1 500
Nickel
Other commodities
3
1 341
No.
3
3
Valu
e $m
2 046
2
1
22
000
15
6
26
000
5 868
6
2 570
9
1 963
2
529
Uranium
Total
25
12
923
64
99
180
50
72
361
No.
SA
Valu
e $m
No.
Vic
Valu
e $m
No.
Tas
Valu
e $m
No.
Other
Valu
e $m
No.
Total
Valu
e $m
No.
3
50
2
1
1
1 247
1
291
1 046
267
9
54
123
3 200
10
2 152
28
160
39
614
487
2
663
17
2
3 590
22
3
1
3
5
933
2 246
16
4
6
5 500
6
200
1 117
1 608
1
4
4
645
645
1
2
13
000
1 000
14
000
Valu
e $m
2 046
9
7
62
700
5 883
30
9 569
2
529
162
208
463
Projects to develop coal deposits remain the most prevalent at the Feasibility Stage,
with 50 projects that have a combined value of $54 billion. In the past six months
three coal projects have progressed to the Committed Stage, one new project was
added to the major projects list, four were removed and one has been moved back
to the Publicly Announced Stage. The net effect of these movements is that there
are now seven fewer coal projects at the Feasibility Stage relative to April 2013.
Queensland remains the main location for planned coal projects, accounting for 37
of the 50 coal projects at the Feasibility Stage. By value, Queensland accounts for
around 90 per cent of planned coal investment at the Feasibility Stage which is
attributable to large coal projects located in the greenfield Galilee Basin. These
projects include Adani’s Carmichael coal project ($7.1 billion), GVK-Hancock’s Alpha
and Kevin’s Corner coal mines ($8.2 billion and $4.2 billion, respectively), Waratah
Coal’s China First coal project ($8.8 billion) and Bandanna Energy’s South Galilee coal
project ($4.2 billion). New South Wales has 12 coal projects at the Feasibility Stage;
however, as these are mainly expansions to existing mines they are generally lower
in cost than the greenfield developments in Queensland.
There are 22 iron ore projects at the Feasibility Stage that, together, are valued at
$39.6 billion. While this is one more project than identified in April, the value is $6.9
billion lower due to the removal of the proposed Gladstone Steel Plant and a revised
cost estimate for Rio Tinto’s Koodaideri project in the Pilbara. Two new projects
were added to the major projects list, these are Fortescue Metals Group’s Iron
Bridge (stage 2) project ($1.3 billion) and Mindax’s Mt Forrest project ($177 million).
Atlas Iron’s Mt Webber project has been split into two stages with the first moved to
the Committed Stage after receiving a positive FID during the period.
Hancock Prospecting’s Roy Hill project ($9.5 billion, including infrastructure) remains
the highest value iron ore project at the Feasibility Stage. Although this project is
reported to have already signed several contracts for developing the mine, it is
understood that full financing had yet to be finalised as at 31 October 2013. The
project has therefore remained classified as being at the Feasibility Stage.
There are nine LNG, gas and oil projects at the Feasibility Stage, which is two lower
than reported in April 2013. This decrease is due to the Tassie Shoal LNG and Tassie
Shoal methanol projects being removed from the major projects list. No LNG, gas or
oil projects previously on the major projects list progressed to the Committed Stage
over the past six months. The value of LNG, gas and oil projects has declined by $9
billion as a result of the two project removals and lower cost estimate for the Arrow
LNG project. There are also reports an alternative, less capital intensive, option to
build a single LNG train at one of the LNG plant sites already under construction on
Curtis Island in Queensland is being considered for the Arrow LNG project. The
development of a two train separate LNG plant remains on the major projects list for
this report.
There is the potential for further floating LNG developments in Australia with the
Santos-GDF Suez Bonaparte and Exxon Mobil-BHP Billiton Scarborough projects
already at the Feasibility Stage. Although neither project has progressed further in
17
BREE’s pipeline model in the past six months, the Scarborough project received
Federal Government environmental approval in October 2013. Ongoing community
concerns and political sensitivity towards coal seam gas developments have stalled
the progression of domestic gas projects on the east coast. Arrow Energy’s Bowen
and Surat gas projects remain at the Feasibility Stage along with AGL’s Gloucester
project and Santos’ Narrabri project.
The number of gold projects at the Feasibility Stage has decreased reflecting the
substantial retreat in the price of gold over the past six months. Through 2013 gold
producers have been more focused on controlling costs at existing operations at the
expense of planning expansions and new projects. Five gold projects were removed
from the major projects list which was only partially offset by three projects moving
up from the Publicly Announced Stage. The highest value of these is Vista Gold’s Mt
Todd project at around $1 billion.
The number of metals projects, including aluminium, copper, lead, zinc, silver and
nickel projects, at the Feasibility Stage increased by one in the six months to October
2013. Four metals projects progressed to the Feasibility stage and Sirius Resources’
Nova-Bollinger nickel project was added to the major projects list. Offsetting these
were the removal of Alcoa’s Wagerup alumina refinery unit 3 expansion and Proto
Resources and Investment’s Barnes Hill nickel project along with two projects being
moved back to the Publicly Announced Stage. The value of metals projects at the
Feasibility Stage decreased by $1.2 billion, underpinned mainly by the removal of the
Wagerup Unit 3 expansion which was valued at around $2 billion.
There are 30 projects at the Feasibility Stage that relate to other commodities such
as phosphates, rare earth elements, mineral sands and metallic minerals that
Australia produces in smaller quantities. These 30 projects have a combined value of
$9.6 billion. By comparison, there were 27 projects worth $8.9 billion at the end of
April 2013.
18
Projects at the Committed Stage
Overview
Projects at the Committed Stage have completed their planning activities, received
all necessary Government regulatory approvals and finalised the financing of the
project to allow construction. In most cases, projects at this stage of development
have already started construction as there are typically pre-works undertaken as
part of exploration and design activities. Most projects that progress to the
Committed Stage will eventually commence production. Post-FID, there are still
schedule, technical and financial risks that, if realised, can affect the commercial
viability of a project and possibly lead to its cancellation.
Projects progressing to the Committed Stage
In the six month period from (and including) May 2013 to October 2013, five projects
worth a combined $1.7 billion were identified as receiving final approval to
commence construction and have been moved to the Committed Stage (see Table 4).
By comparison, nine projects worth $3.3 billion were sanctioned and progressed to
the Committed Stage in the previous six month period. This is both the lowest
number and lowest value of projects moving to the Committed Stage in over a
decade. Two of the sanctioned projects, Yancoal Australia’s Ashton South East
opencut and Whitehaven’s Maules Creek, have had legal appeals against them that
are yet to be ruled on and may prevent the projects from proceeding.
Table 4:
Projects that progressed to the Committed Stage
Project
Company
State
Value ($m)
Ashton South East opencut
Yancoal Australia
NSW
83
Maules Creek
Whitehaven
NSW
766
Mt Webber (stage 1)
Atlas Iron, Altura Mining
WA
146
Iron Bridge (stage 1)
Fortescue Metals Group / Formosa
Plastics Group / Baosteel
WA
358
Xena Gas Field (phase 1)
Woodside Petroleum
WA
370
Total
1 723
Analysis of committed investment
The number of projects at the Committed Stage decreased from 73 in April 2013 to
63 in October 2013 (see Table 5). With this decline in project numbers, the value of
committed investment has decreased from $268 billion in April 2013 to $240 billion
in October 2013 (see Figure 6). There have been insufficient project approvals over
the past six months to offset the movement of projects to the completed stage.
Many of the projects moving to the Completed Stage in the past six months were
19
also valued at over $1 billion, whereas all new projects at the Committed Stage are
less than $1 billion. This has also contributed to the decline in value.
Figure 6:
Number and nominal value of projects at the Committed Stage
Please refer to page 15 of the Resources and Energy Major Projects – October 2013 PDF
version.
The ‘mega projects’ valued at more than $5 billion continue to represent the highest
proportion of investment in Australia (see Figure 7). The proportion of committed
investment attributable to ‘mega projects’ has increased from 80 per cent in April
2013 to 82 per cent in October 2013. By comparison in October 2008, mega projects
accounted for 34 per cent of committed investment in resources and energy projects.
Figure 7:
Share of committed investment – October 2008 vs October 2013
Please refer to page 15 of the Resources and Energy Major Projects – October 2013 PDF
version.
20
Table 5:
Summary of projects at the Committed Stage
NSW
Qld
WA
NT
8
5 131
7
6 252
15
Copper
1
93
1
250
2
11
383
343
Gold
3
270
1
246
4
516
Infrastructure
2
814
5
6 600
11
11
974
17
346
1 933
Iron ore
Lead, Zinc, Silver
1
58
LNG, Gas, Oil
2
1 515
3
62
500
4
4 560
8
17
166
9
98
542
3
1 495
No.
Valu
e $m
Total
Aluminium, Bauxite,
Alumina
Coal
No.
Valu
e $m
Other
No.
No.
Valu
e $m
Tas
No.
No.
Valu
e $m
Vic
Valu
e $m
No.
Valu
e $m
SA
Valu
e $m
No.
Valu
e $m
No.
1
180
9
1
360
4
1
33
000
1
1 000
Valu
e $m
14
195
042
3
1 495
1
98
63
240
130
Nickel
Other commodities
Uranium
Total
15
6 366
19
77
363
24
121
763
3
33
540
21
1
98
1
98
1
1 000
Summary of projects at the Committed Stage
LNG, gas and oil projects account for the majority of investment at the Committed
Stage. Although more coal projects are under construction, the 14 LNG, gas and oil
projects have a higher combined value of $195 billion because of the very large
individual values of several key projects (see Figure 8). For example, Chevron’s $52
billion Gorgon LNG project in Western Australia is almost five times the value of all
coal projects at the Committed Stage. The LNG projects under construction in
Australia remain a significant source of investment with each project at least double
the cost of the Snowy Hydro Scheme in real terms.* The total value of LNG, gas and
oil projects has decreased by $9.9 billion over the past six months due to five
projects progressing to the Completed Stage including Woodside Energy’s $5 billion
North Rankin B project. Woodside also sanctioned the Xena gas field project during
the period, which was the only LNG, gas and oil project to progress to the
Committed Stage.
Figure 8:
Value of projects at the Committed Stage by commodity
Please refer to page 17 of the Resources and Energy Major Projects – October 2013 PDF
version.
Two iron ore projects progressed to the Committed Stage during the period, Atlas
Iron’s Mt Webber (stage 1) project ($146 million) and stage 1 of the Iron Bridge joint
partnership between Fortescue Metals Group, Formosa Plastics Group and Baosteel
($358 million). Although the number of iron ore projects at the Committed Stage
increased by one, the value decreased by $4.7 billion due to the completion of BHP
Billiton’s $5.2 billion Jimblebar project. Fortescue Metals Group’s Solomon Hub stage
1 ($3.1 billion) has remained on the major projects list as the Kings development was
still being commissioned at the end of October with first ore shipments scheduled
for December 2013. Similarly, CITIC Pacific’s Sino Iron project ($8.4 billion) remains
on the major projects list as it is yet to complete commissioning activities and
commence full scale production.
In total, nine iron ore projects worth around $17.3 billion remain at the Committed
Stage at the end of October 2013. All of these except the recently approved Iron
Bridge project are scheduled to start production by the end of 2014. When complete,
these projects will increase Australia’s iron ore production capacity by around 120
Mt per year.
There are 15 coal projects with a combined value of $11.3 billion at the Committed
Stage as at the end of October 2013. This is one project and $2.8 billion less than
reported at the end of April 2013. Although two new projects progressed to the
Committed Stage, Yancoal Australia’s Ashton Southeast open cut ($83 million) and
*
Reported (http://www.snowyhydro.com.au/energy/hydro/the-history/) as being
completed in 1974 for $820 million and inflated to around $7.5 billion in 2013–14 dollars
using the CPI.
22
Whitehaven’s Maules Creek ($767 million), five projects worth a combined $5.1
billion progressed to the Completed Stage. Peabody Energy’s Middlemount (stage 2)
and North Goonyella projects have also been moved to the Committed Stage,
though these were approved in a previous period. Of the 15 coal projects at the
Committed Stage, eight are located in New South Wales and seven in Queensland.
Most are expansions to existing mines and only four are developing new mines. BHP
Billiton’s Caval Ridge project ($1.9 billion) is the highest value project and is
scheduled to start production in 2014.
No gold or non-ferrous metals projects progressed to the Committed Stage in the six
months to October 2013 which reflected the challenging market conditions facing
these types of projects. Two gold projects and one manganese project were
completed and progressed to the Committed Stage during the period. There are now
four gold projects, four lead-zinc projects, two copper projects, two ammonium
nitrate processing projects and one rare earth minerals project under construction in
Australia.
The number of infrastructure projects at the Committed Stage at the end of October
decreased by four, relative to April 2013, to total 11 projects. This was the result of
four projects moving to the Completed Stage and no new infrastructure projects
approvals in the past six months. Subsequently, the value of committed
infrastructure projects decreased by $9.1 billion during the period. There are still
several high value infrastructure projects under construction, including BHP Billiton’s
Hay Point expansion ($3.1 billion), the Wiggins Island Coal Terminal ($2.4 billion) and
Fortescue Metals Group rail expansion. However, most of the infrastructure projects
at the Committed Stage are scheduled for completion with the next 18–24 months.
Figure 9:
Locations of projects at the Committed Stage
Please refer to page 19 of the Resources and Energy Major Projects – October 2013 PDF
version.
23
Projects at the Completed Stage
Overview
The Completed Stage includes projects that have completed the majority of their full
project scope as well as commissioning activities and can begin commercial scale
production. As many projects include multiple stages and scope elements that can
be independent of each other, the timing of when a project reaches the Completed
Stage is difficult to assess. In the major projects list provided with this report,
projects that have progressed to the Completed Stage in the past six months are
recorded in the commodity table of the major project list and all projects completed
within the past three years shown in a separate table.
Summary of projects at the Completed Stage
In the six months to October 2013, 18 resources and energy projects progressed to
the Completed Stage, this was three less than the previous six month period (see
Table 6). Together, these 18 projects have a combined value of $30.3 billion which is
the highest value recorded for project completions in a six month period (see Figure
10). The previous record for completed project value was the six months to April
2012 with $23.5 billion. Although 25 projects were completed in the April 2012
period, around $15 billion of the total value is attributable to the completion of
Woodside Energy’s Pluto LNG plant. While no $15 billion projects were completed in
the past six months, three valued at over $5 billion each were completed along with
six projects each valued at over $1 billion.
Figure 10:
Value of completed projects
Please refer to page 20 of the Resources and Energy Major Projects – October 2013 PDF
version.
Table 6:
Projects at the completed stage
Project
Company
Stat
e
New
Capacity
Capacity
Unit
Resource
Cost
$m
Andy Well
Doray Minerals
WA
74 000
oz
Gold
55
Austar underground Yancoal Australia
(stage 3)
NS
W
3.6
Mt
Coking
coal
250
Broadmeadow
BHP Billiton
(mine life extension) Mitsubishi Alliance
(BMA)
QLD 0.4
Mt
Coking
coal
874
Cape Lambert port
and rail expansion
Rio Tinto / Hancock
Prospecting
WA
ktpa
Iron Ore
5 166
Daunia
BHP Billiton
Mitsubishi Alliance
(BMA)
QLD 4.5
Mt
Coking
coal
1 553
Fletcher-Finucane
Santos / KUFPEC /
Nippon Oil / Tap Oil
WA
kbpd
Oil
490
60 000
15
24
Stat
e
New
Capacity
Capacity
Unit
NT
600
kt
Manganes 270
e
Jimblebar mine and BHP Billiton
rail (WAIO)
WA
35 000
kt
Hematite
5 180
Kestrel
Rio Tinto, Mitsui
QLD 1.4
Mt
Coking
coal
2 105
Macedon
BHP Billiton /
Apache Energy
WA
PJ pa
Gas
1 470
Millennium
Peabody Energy
QLD 1.5
Mt
Coking
coal
270
Montara-Skua
oilfield
PTTEP
Othe 35
r
kbpd
Oil
680
NS
W
13 000
ktpa
Black coal 1 000
967
PJ pa
Gas
5 000
Project
Company
Gemco Phase 2
Expansion
BHP Billiton /
Samancor
Manganese
NCIG export
NCIG
terminal (Newcastle
Coal Infrastructure
Group) (stage 3)
NWS North Rankin
B
Woodside Petroleum WA
/ BHP Billiton / BP /
Chevron / Shell /
Japan Australia LNG
75
Resource
Cost
$m
Port (55 - 155 Mtpa) Fortescue Metals
Group
WA
100 000
ktpa
Iron ore
2 300
Tropicana Joint
Venture Project
AngloGold Ashanti/
Independence
Group
WA
480 000
oz
Gold
845
Turrum
ExxonMobil / BHP
Billiton
VIC
11, 77
kbpd, PJ
pa
Oil, Gas
2 600
Whylla Port
Expansion
Arrium
SA
7 000
ktpa
Iron ore
200
Total
30 308
Five LNG, gas and oil projects with a combined value of $10.2 billion were completed
over the past six months. Woodside Energy’s North Rankin B accounts for around
half of this and is valued at about $5 billion. Other LNG, gas and oil projects to be
completed included BHP Billiton and Exxon Mobil’s Turrum project ($2.6 billion), BHP
Billiton and Apache’s Macedon gas project ($1.5 billion), PTTEP’s Montara-Skua
oilfield project ($680 million) and the Santos led joint venture Fletcher-Finucane gas
project ($490 million).
In total, six coal and coal-related infrastructure projects were completed during the
period. These have a combined value of $6.1 billion. This highest value project is Rio
Tinto and Mitsui’s Kestrel coking coal project ($2.1 billion) followed by the BHP
Billion Mitsubishi Alliance’s Daunia coking coal project ($1.6 billion). All of the coal
mining projects completed during the period produce coking coal and will, together,
increase Australia’s production capacity by around 10 Mt per year. In addition to
these mining projects, stage 3 of the NCIG export terminal was completed during the
period. Valued at around $1 billion, this port expansion will provide an additional 13
25
Mt capacity at the Port of Newcastle to support coal exports from the Hunter and
Gunnedah regions.
There were four iron ore and iron ore-related infrastructure projects with a
combined value of $12.8 billion that progressed to the Completed Stage in the
period. These included BHP Billiton’s Jimblebar mine and rail project ($5.2 billion),
Rio Tinto’s Cape Lambert port and rail expansion ($5.2 billion), Fortescue Metals
Group’s 100 Mt port expansion ($2.3 billion) and Arrium’s Whyalla port expansion
($200 million). Together, these projects have added over 150 Mt of export
infrastructure capacity to support future growth in Australia’s iron ore exports.
Two gold projects progressed to the Completed Stage in the six months to October
2013. Both completed gold projects are located in Western Australia, these are the
Tropicana joint venture ($845 million) and Doray Minerals’ Andy Well project ($55
million). BHP Billiton and Samancor Manganese’s Phase 2 expansion at the Gemco
manganese mine at Groote Eylandt in the Northern Territory was also completed in
the period.
Table 7:
Summary of projects in the investment pipeline, April 2013
Publicly Announced
No.
Range*
$m
Aluminium,
Bauxite, Alumina
3
1 000–2 000
Coal
19
Copper
Feasibility
Stage
No.
Value
$m
3
2 046
16 885–19 635+
50
5
10 200–11 451+
Gold
9
Infrastructure
Iron ore
Committed
Completed
No.
Value
$m
No.
Value
$m
54 123
15
11 383
5
5 052
9
3 200
2
343
1 065–1 815
10
2 152
4
516
2
900
10
14 750–23 500+
17
28 160
11
11 974
4
8 666
19
35 784–55 784+
22
39 614
9
17 346
1
5 180
Lead, Zinc, Silver 2
65–315
3
487
4
1 933
LNG, Gas, Oil
9
24 500–26 750+
9
62 700
14
195 042 5
Nickel
4
2 000–4 000
7
5 883
Uranium
5
1 371–2 371
2
529
1
98
Other
commodities
7
2 000–4 000
30
9 569
3
1 495
Total
92
109 620–151
621+
162
208
463
63
240 130 18
1
10 240
270
30 308
* Value of Publicly Announced projects given in cost range with projects over $5 billion
having no upper bound.
26
Figure 10:
Resources and energy projects by stage and region
Please refer to page 24 of the Resources and Energy Major Projects – October 2013 PDF
version.
27
Outlook for resources and energy investment
Overview
BREE’s conceptualisation of the investment pipeline is a generic model and in
practice resources and energy projects go through tailored development processes
that suit their proprietor’s planning requirements. The pipeline model is useful for
assessing trends in resources and energy sector investment such as the rate at which
projects are progressing or if bottlenecks are emerging at any particular point.
Despite the strength of the resources boom over the past decade, it has been clear
that not every resources and energy project is developed. As such, the projects still
in the Publicly Announced and Feasibility Stages can only be viewed as potential
investment and additional analysis is required to produce an outlook for future
investment in the resources and energy sectors.
BREE’s outlook for resources and energy project investment provides aggregate
estimates of investment in two scenarios, a ‘likely’ and a ‘possible’ scenario. The two
scenarios model the rate at which projects currently at the Committed Stage are
expected to move to the Completed Stage and are subsequently removed from the
list, as well as the timing of projects assessed as possible or likely to progress to the
Committed Stage. The schedules of planned projects, including both the timing of a
FID and start of production, are uncertain and subject to variation.
The ‘likely’ scenario is based on the existing projects at the Committed stage and
adds projects that BREE assesses as having a higher probability of proceeding based
on analysis of a range of internal and external factors that historically helped
determine a project’s success in being sanctioned. Where data is available, analysis
of the proposed project’s position on the relevant commodity cost curve and an
assessment of the internal rate of return are undertaken. As the assessments are
probability-based there still remains a degree of uncertainty over projects assessed
as likely and their progression to the Committed Stage is far from guaranteed. The
‘possible’ scenario includes projects already at the Committed Stage, projects
assessed as likely to proceed and projects assessed as ‘possible’. A possible rating is
given to a project that has some positive internal and market factors that suggest it
may advance to the Committed Stage, but it also faces greater challenges than a
‘likely’ project that may limit its commercial viability.
Projects assessed as unlikely to proceed are not included in the forward projection of
the value of committed investment. Although assessments are made at the project
level, as some of the information provided to support the assessment is treated as
commercial in confidence, individual project assessments are not provided.
Outlook for resources and energy investment
The stock of committed investment in the Australian resources and energy sectors
declined from $268 billion to $240 billion in the six months from April 2013 to
October 2013. This large drop in investment is the result of two records being set in
28
the period – a record high for the value of projects being completed ($30 billion) and
the lowest value of new projects being sanctioned in the past decade ($1.7 billion).
Both measures are initial indicators that the Australian resources boom is now
transitioning from the investment phase to the production phase.
There remains the potential for further investment in Australia’s resources and
energy sectors. However, the latest commodity price cycle has reached its apex and
the decline in the prices of most commodities over the past 12–18 months has
created more challenging investment conditions. Many (but not all) commodity
markets are either already or soon to be oversupplied as the lower demand growth
trajectory has undershot the rush of global investment to increase supply over the
past five years. Although commodity prices are cyclical, it is unlikely they will
rebound to the very high levels observed at the peak of the latest cycle. As such, the
prospects for investment at levels comparable to the past five years in Australia are
limited.
As outlined in the previous Resources and Energy Major Projects a substantial
number of the high value projects that would have sustained the record levels of
investment in the resources and energy sectors have been either delayed or
cancelled. This trend has continued over the past six months and BREE has removed
37 projects from the major projects list. A further 71 projects have been delayed
across all stages of the investment pipeline.
BREE’s projection for the decline in the existing stock of committed investment
remains broadly unchanged. The only notable variation to the projected value of the
existing projects relates to the delay to completion of the Sino Iron Project ($8.4
billion) which has resulted in a higher than previously expected end of year value for
existing committed investment in 2013. The value of the existing stock of committed
projects is still projected to decline rapidly over the next four years in line with the
completion schedules of the mega LNG projects.
By comparison, the projected value of investment in both the likely and possible
scenarios reflects the revisions to project schedules. Since April 2013 there has been
a marked move to the right in projected aggregate investment in both scenarios as a
result of delays to several high value projects. In the likely scenario, committed
investment in 2014 is forecast to increase (potentially) above the 2013 end of year
level but still remain well below the peak levels of 2012.* The approval of all projects
assessed as possible in 2014 would also not support a return to such investment
levels (see Figure 12).
*
Note that several projects are still expected in November and December of 2013 that
are still recorded at the Committed Stage in this report. For example, Fortescue Metals
Group’s Solomon Hub Stage 1 is currently at the Committed stage and is expected to be
completed in December 2013. This project is removed from the forecast of committed
investment shown in Figure 12.
29
Figure 12:
Outlook for committed project investment
Please refer to page 27t of the Resources and Energy Major Projects – October 2013 PDF
version.
In 2015 there is the potential for a rebound in resources and energy sector
investment as there are a large number of projects that are assessed as requiring a
FID in that year in order to meet their current schedule. This rebound would require
a substantial portion of projects assessed as possible to be approved as committed
investment in the likely scenario is projected to decline in 2015 due to the effect of
LNG trains being completed in that year. After 2015, both the likely and possible
investment scenarios are projected to decline with further LNG train completions
being a primary driver of the decline. Later in the outlook period the committed
investment projections become more heavily reliant on projects currently rated as
possible. This is mainly because detailed information on projects scheduled for FID
after 2015 is still unavailable and limits the prospect of providing higher probabilities
of success for those projects.
These investment projections are based on projects achieving their current
schedules and as previously noted, there has been a high incidence of realised
schedule risks in resources and energy projects over the past 12–18 months.
Nevertheless, there remains significant opportunity for additional investment in
Australia’s resources and energy sectors. While market conditions are expected to
remain challenging, in the right commercial and policy environment there is the
potential for committed investment to remain at high levels for several more years.
In assessing the current downturn in the resources and energy investment cycle it is
important to remember that while this signals a potential end to the investment
phase of the mining boom, the transition to the production phase is only just
beginning. During the 12 months to October 2013 the value of completed projects
was a record high $45.7 billion. In the past 12 months there have been production
capacity increases of 108 Mt per year of iron ore, 13 Mt per year of coal, 182 PJ per
year of gas and 1.2 million ounces per year of gold. With further production capacity
of 126 Mt of iron ore, 60 Mt of coal and 61 Mt of LNG still under construction, there
is still substantial growth to come in Australia’s output of mineral and energy
commodities to come. To put the scale of the transition to the production phase in
perspective, the increase in iron ore production capacity achieved by Fortescue
Metals Group completing its expansion projects over the past 12 months is, by itself,
larger than the annual iron ore exports of any country other than Australia and Brazil
in 2012. Like many mining projects undertaken in the past five years, the output
from Fortescue’s expansions is scheduled to continue for many years.
While the capital inflows associated with investment phase of the mining boom have
brought substantial economic benefits to Australia they are realised over a relatively
short period of time. The economic benefits of the production phase may not be as
large as the investment phase per year, but they are expected to last for
considerably longer.
30